oversight

Ashford University's Administration of the Title IV, Higher Education Act Programs

Published by the Department of Education, Office of Inspector General on 2011-01-21.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

               Ashford University’s Administration of the
               Title IV, Higher Education Act Programs


                                 FINAL AUDIT REPORT




                                    ED-OIG/A05I0014
                                      January 2011


Our mission is to promote the                         U.S. Department of Education
efficiency, effectiveness, and                        Office of Inspector General
integrity of the Department's
programs and operations
                        NOTICE

Statements that managerial practices need improvements, as well as
other conclusions and recommendations in this report, represent the
opinions of the Office of Inspector General. Determinations of
corrective action to be taken will be made by the appropriate
Department of Education officials.

In accordance with the Freedom of Information Act (5 U.S.C. § 552),
reports issued by the Office of Inspector General are available to
members of the press and general public to the extent information
contained therein is not subject to exemptions in the Act.
                                   UNITED STATES DEPARTMENT OF EDUCATION
                                                        OFFICE OF INSPECTOR GENERAL

                                                                                                               AUDIT SERVICES
                                                                                                  Chicago/Kansas City Audit Region


                                                                       January 21, 2011

Dr. Elizabeth Tice
President
Ashford University
400 North Bluff Boulevard
Clinton, IA 52732-3997

Dear Dr. Tice:

The enclosed final audit report, Control Number ED-OIG/A05I0014, presents the results of our audit
titled Ashford University’s Administration of the Title IV, Higher Education Act Programs. This report
incorporates the comments you provided in response to the draft report. If you have any additional
comments or information that you believe may have a bearing on the resolution of this audit, you should
send them directly to the following Department of Education official, who will consider them before
taking final Departmental action on this audit:

                                           William J. Taggart
                                           Chief Operating Officer
                                           Federal Student Aid
                                           U.S. Department of Education
                                           Union Center Plaza, Room 112G1
                                           830 First Street, N.E.
                                           Washington, DC 20202

It is the policy of the U. S. Department of Education to expedite the resolution of audits by initiating
timely action on the findings and recommendations contained therein. Therefore, receipt of your
comments within 30 days would be appreciated.

In accordance with the Freedom of Information Act (5 U.S.C. § 552), reports issued by the Office of
Inspector General are available to members of the press and general public to the extent information
contained therein is not subject to exemptions in the Act.



                                                                 Sincerely,

                                                                 /s/

                                                                 Gary D. Whitman
                                                                 Regional Inspector General for Audit




 The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
                                                   excellence and ensuring equal access.
                                              TABLE OF CONTENTS


                                                                                                                                   Page

EXECUTIVE SUMMARY ...........................................................................................................1 

BACKGROUND ............................................................................................................................3 

AUDIT RESULTS .........................................................................................................................7 

          FINDING NO. 1 –                Compensation Plan Included Incentive Payments
                                         and the University Did Not Establish Eligibility for
                                         Safe Harbor ....................................................................................7 

          FINDING NO. 2 –                Incorrect Return of Title IV Aid Calculations ..........................16 

          FINDING NO. 3 –                Untimely Return of Title IV, HEA Program Funds .................30 

          FINDING NO. 4 –                Lack of Proper Authorization to Retain Student
                                         Credit Balances ............................................................................33 

          FINDING NO. 5 –                Improper Disbursements of Title IV, HEA
                                         Program Funds.............................................................................37 

          FINDING NO. 6 –                Lack of Support for Students’ Leaves of Absence ....................44 

OBJECTIVES, SCOPE, AND METHODOLOGY ..................................................................48 

APPENDIX A: Enrollment Advisor Evaluation Factors ........................................................52 

APPENDIX B: University Comments on the Draft Audit Report, July 30, 2010 ................54 

APPENDIX C: Consultant’s Analysis of Enrollment Advisors’ Compensation, July
            29, 2010............................................................................................................112 

APPENDIX D: University Supplemental Comments on the Draft Audit Report,
            November 19, 2010 .........................................................................................142 

APPENDIX E: University’s Second Supplemental Comments on the Draft Audit
            Report, January 10, 2011 ..............................................................................152 
             Abbreviations, Acronyms, and Short Forms Used in this Report

ACG                Academic Competitiveness Grant

ACS                Affiliated Computer Services, Inc.

C.F.R.             Code of Federal Regulations

COD                Common Origination and Disbursement system

COO                Chief Operating Officer

Department         U.S. Department of Education

FFEL               Federal Family Education Loan

FSA                Federal Student Aid

FSEOG              Federal Supplemental Educational Opportunity Grant

FWS                Federal Work Study

GPA                Grade Point Average

HEA                Higher Education Act of 1965, as amended

OIG                Office of Inspector General

Pell               Federal Pell Grant

Perkins            Federal Perkins Loan

National SMART     National Science and Mathematics Access to Retain Talent

University         Ashford University
                                EXECUTIVE SUMMARY


The objectives of our audit were to determine whether, for its distance education programs,
Ashford University (University) complied with selected provisions of the Higher Education Act
of 1965, as amended (HEA), and regulations governing (1) incentive compensation; (2) student
eligibility; (3) disbursements; and (4) return of Title IV, HEA program funds. Our audit covered
the period July 1, 2006, through June 30, 2007 (award year 2006-2007).

We identified noncompliance by the University with the incentive compensation requirements,
as well as instances of noncompliance with the disbursements, and return of Title IV, HEA
program funds requirements. Specifically, the University

          Designed a compensation plan for enrollment advisors that provided incentive
           payments based on success in securing enrollment and did not establish that its plan
           and practices qualified for the regulatory safe harbors;
          Did not properly perform return of Title IV aid calculations, resulting in the improper
           retention of $29,036 of Title IV, HEA program funds for 38 of the 85 students in our
           samples (based on statistical sampling techniques, we are 90 percent confident that
           the University improperly retained at least $1.1 million of 2006-2007 Title IV, HEA
           program funds);
          Did not return Title IV, HEA program funds timely;
          Retained student credit balances without proper authorizations;
          Did not always disburse Title IV, HEA program funds in accordance with Federal
           regulations or its own policy; and
          Did not maintain supporting documentation for students’ leaves of absence.

Except for the disbursement and leaves of absence issues noted above, the University generally
complied with the student eligibility requirements.

We recommend that the Chief Operating Officer (COO) for Federal Student Aid (FSA) require
the University to

          Provide records of all salary adjustments made during our audit period and any
           documentation, not disclosed to the Office of Inspector General (OIG), that
           demonstrates that any specific adjustments qualified for the regulatory safe harbor
           described in
           34 Code of Federal Regulations (C.F.R) § 668.14(b)(22)(ii)(A);
          Return to the U.S. Department of Education (Department) and lenders, as appropriate,
           $29,036 resulting from the improper return of Title IV aid calculations and post-
           withdrawal disbursements that exceeded what the 38 students in our samples were
           entitled to receive;
          Review its files for the students not included in our samples, identify the amount of
           Title IV, HEA program funds that were improperly retained for Title IV, HEA
Final Report
ED-OIG/A05I0014                                                                         Page 2 of 155

                program recipients in the distance education programs who withdrew from the
                University during award year 2006-2007, and return that amount, plus any interest
                and special allowance, to the Department or lenders, as appropriate;
               Cease drawing, disbursing, and holding credit balances of Title IV, HEA program
                funds for which there are no currently assessed institutional charges;
               Review its records for all students who were not included in our samples and who
                received Title IV, HEA program disbursements during award year 2006-2007;
                identify all disbursements made to students who were not eligible for them at the time
                of the disbursement and never became eligible for the disbursements, and return those
                amounts to the Department or to Federal Family Education Loan (FFEL) Program
                lenders, as appropriate; and
               Develop and implement written policies and procedures to provide reasonable
                assurance of compliance with requirements for participation in the Title IV, HEA
                programs, as described in this report.

Because of the seriousness of the findings, we also recommend that the COO for FSA consider
taking appropriate action under 34 C.F.R. Part 668, Subpart G.1

We provided a draft of this report to the University for review and comment on May 24, 2010.
We received the University’s comments, along with additional documentation, on July 30, 2010.
The University also provided supplemental comments on November 19, 2010, and sent a letter to
the Assistant Inspector General for Audit on January 10, 2011. The University disagreed with
all aspects of the findings and the recommendations for Finding Nos. 1, 2, and 4. The University
agreed with some of the facts discussed in Finding Nos. 3, 5, and 6; however, the University did
not agree with those findings or the recommendations for those findings. We summarized the
University’s comments at the end of each finding.

Based on our analysis of the University’s comments and the additional documentation, we made
minor revisions to Finding Nos. 1, 2, 5, and 6. We also revised the Recommendations for
Finding No. 1 and made minor revisions to Recommendations 2.1, 2.2, 2.3, 4.3, 5.1, and 6.3(a).
We removed Recommendations 2.5, 3.3, 4.1, 4.2, 6.1, 6.2, and 6.3(b) and renumbered the other
recommendations accordingly.

The entire narrative of the University’s comments dated July 30, 2010, and November 19, 2010,
and the letter dated January 10, 2011, are included as APPENDIX B, APPENDIX D, and
APPENDIX E, respectively. Other than the University’s consultant’s report (APPENDIX C),
we have not included the University’s attachments to its comments on the draft audit report
because they were voluminous. Copies of the attachments, less any personally identifiable
information or other information exempt under the Freedom of Information Act (5 U.S.C. §
552(b)), are available upon request.




1
    All regulatory citations are to the July 1, 2006, volume unless otherwise noted.
Final Report
ED-OIG/A05I0014                                                                                  Page 3 of 155


                                            BACKGROUND


Ashford University (University) is a proprietary coeducational, liberal arts university located in
Clinton, Iowa. It originally was founded in 1918 as a residential campus junior college named
Mount St. Clare College. In 1979, the institution received approval to award baccalaureate
degrees. In 2002, the University changed its name to The Franciscan University. In 2004, The
Franciscan University, a non-profit institution, conferred its first graduate degrees. That same
year, the institution changed its name to The Franciscan University of the Prairies to avoid
confusion with similarly named schools. Since 2005, it has been owned by Bridgepoint
Education, Inc., which is located in San Diego, California. The institution changed its name to
Ashford University when Bridgepoint Education, Inc., purchased it in 2005 and converted the
University to a for-profit institution.

The University is accredited by The Higher Learning Commission, a Commission of the North
Central Association of Colleges and Schools. It offers more than 30 programs awarding
associates, bachelors, and masters degrees. Students can be enrolled in either a distance
education course or a traditional course, but not both, within a single academic semester. As of
March 2008, the University offered programs to approximately 15,000 students (14,500 distance
education students and 500 residential students).2 As of December 31, 2009, the University had
68,470 Title IV, HEA program recipients.3

The purpose of the programs authorized by Title IV of the Higher Education Act of 1965 (HEA)
is to provide financial assistance to students attending eligible institutions of higher education.
During award year 2006-2007, the University was approved to participate in seven Title IV,
HEA programs:

        1.   Federal Family Education Loan (FFEL);
        2.   Federal Pell Grant (Pell);
        3.   Federal Supplemental Educational Opportunity Grant (FSEOG);
        4.   Federal Work Study (FWS);
        5.   Federal Perkins Loan (Perkins);
        6.   Academic Competitiveness Grant (ACG); and
        7.   National Science and Mathematics Access to Retain Talent (National SMART).

Table 1 summarizes the Title IV, HEA program funding the University received on behalf of its
distance education students for award year 2006-2007.4



2
  The enrollment numbers were provided to us by the University’s President.
3
  The 2009 enrollment numbers were reported in the University’s Compliance Attestation Examination of the Title
IV Student Financial Assistance Programs for the fiscal year ended December 31, 2009.
4
  The University’s Vice President of Finance provided us with the Title IV, HEA program funding information for
the distance education students.
Final Report
ED-OIG/A05I0014                                                                                     Page 4 of 155

Table 1. Title IV, HEA Program Funding 2006-2007
                   Program                                           Distance Education Students
    FFEL Program–Unsubsidized Stafford Loan                               $41,373,308
    FFEL Program–Subsidized Stafford Loan                                 $30,733,760
    FFEL Program–PLUS                                                     $ 134,523
    Pell                                                                  $ 9,135,593
    FSEOG                                                                 $     1,000(a)
    FWS                                                                   $         0
    Perkins                                                               $         0
    ACG                                                                   $         0
    National SMART                                                        $     4,000
    Total                                                                 $81,382,185(b)
    (a) FSEOG was not offered to distance education students during our audit period. One student in the universe
        transferred from a traditional program to a distance education program during award year 2006-2007. The
        student received FSEOG while enrolled in the traditional program.
    (b) The sum does not exactly equal the total of the numbers in the column due to rounding.

During award year 2009-2010, the University received about $613,003,158 in Title IV, HEA
program funds.

Distance Education Title IV Student Population
The University began offering distance education courses after the change in ownership in
March 2005. Since then, the number of distance education Title IV, HEA program recipients has
significantly increased.

Table 2. Distance Education Title IV, HEA Program Recipients
                           Number of Distance                 Increase in               Percent Change
                         Education Title IV, HEA            Recipients from            From Prior Award
     Award Year           Program Recipients*              Prior Award Year                Year (%)
  2005-2006                   1,849
  2006-2007                   8,440                      6,591                      356
  2007-2008                  24,460                     16,020                      190
  2008-2009                  32,948                      8,488                       35
*The numbers in this column were provided by the University’s Vice President of Finance.

Approximately 78 percent of distance education students were Title IV, HEA program recipients
during award year 2006-2007. About 75 percent of the Title IV, HEA program recipients
enrolled in the distance education programs during award year 2006-2007 were between the ages
of 21 and 40 when they first enrolled at the University. Approximately 72 percent came to the
University with transfer credits. As of September 2008, about 40 percent were active students,
approximately 43 percent had withdrawn, and about 17 percent had graduated.5




5
 The data in this paragraph were provided directly or calculated using data provided by the University’s Vice
President of Finance.
Final Report
ED-OIG/A05I0014                                                                                    Page 5 of 155

Contractor and University Staff Administered the Title IV, HEA Programs for Distance
Education Students
Since July 2005, the University has contracted with Affiliated Computer Services, Inc. (ACS), a
services provider to higher education institutions, to perform most functions of administering
Title IV, HEA program funds for students in the distance education programs. ACS performs
functions such as award packaging, verification, and return of Title IV aid calculations.
University staff stated that all staff working directly with all distance education students (Title IV
and non-Title IV distance education students) work in “pods.” These pods include financial
service advisors, enrollment advisors, and academic advisors. According to the University,

            Financial service advisors conduct phone consultations with potential and current
             distance education students on financing their education, work closely with ACS to
             ensure new students are packaged with their financial aid, and stay in contact with
             current students to ensure they successfully complete the reapplication process in a
             timely manner. They also collect required documentation from new and current
             students. Financial service advisors also are responsible for collection of funds for
             past due accounts.

            Enrollment advisors are responsible for recruiting and enrolling distance education
             students. They make outbound calls to prospective students and conduct phone
             appointments with prospective students to further explore the prospective students’
             motivations for going to school. The enrollment advisors disseminate course and
             program information to new and potential students. They also ensure students are
             eligible for admission. Prior to the students taking their initial course, the enrollment
             advisors make sure that the students are prepared for the course (for example,
             assisting them in ordering their books). Enrollment advisors assist new students from
             the beginning of the enrollment process through the completion of their first course.
             The students are then transferred to an academic advisor.

            Academic advisors work with the distance education students through the rest of their
             enrollment at the University. They contact students on a regular basis to ensure
             student retention. Academic advisors also closely monitor student attendance and
             grades to assure retention and progression. In addition, they define and interpret
             University policies and procedures for students.

Table 3 shows the growth in the number of financial service advisors, enrollment advisors, and
academic advisors from award year 2005-2006 through award year 2008-2009.

Table 3. University Staff for Distance Education Students
                                            Award Year
 Job Title                     2005-2006      2006-2007           2007-2008           2008-2009*
 Financial Service Advisor          7               65                132                 202
 Enrollment Advisor                101             327                635                 985
 Academic Advisor                   6               24                 63                 130
 * Through May 2009. Data presented in the table were provided by the Vice President of Finance.
Final Report
ED-OIG/A05I0014                                                                                    Page 6 of 155

According to the University’s Vice President of Finance, the number of employees who work as
financial service advisors does not include ACS staff who administer the Title IV, HEA
programs for the University. As of June 2009, according to the University’s Vice President of
Finance, ACS had the equivalent of 135 employees who worked on administering the
University’s Title IV, HEA programs.

Enrollment Advisors’ Performance Evaluation Process
The University used matrices to evaluate enrollment advisors’ performance for 6-month rating
periods. The University used two evaluation matrices: one for the enrollment advisor’s first
6 months of employment and a second for each subsequent 6-month review period. The
enrollment advisors’ ratings on the evaluations determine their salaries for the following 6-month
period.

Each section of the matrix contains categories on which the enrollment advisor is rated. The
rating standards are “Always Exceeds,” “Often Exceeds,” “Meets Expectations,” “Requires
Improvement,” and “Unsatisfactory.” The criteria for meeting each rating standard specific to
each category are identified on the matrix. The matrix has a corresponding point assignment
sheet that assigns a number of points to each rating standard for each category on the matrix.
The maximum points an enrollment advisor can receive on an evaluation is 100. APPENDIX A
lists the categories on the matrix, their definition or rating criteria, the University’s classification
of the category as either quantitative or qualitative, and the maximum points for each category.6

On-line Learning Management System
The University uses an on-line learning management system to deliver its on-line courses. Both
students and instructors use the on-line learning management system. Examples of information
in the system include academic postings, grades, participation in discussion groups, academic
assignments, and records of interactions with the instructor.




6
    The information in the table is based on the evaluation matrices used from April 2007 through December 2008.
Final Report
ED-OIG/A05I0014                                                                                   Page 7 of 155


                                           AUDIT RESULTS


For award year 2006-2007, we identified noncompliance by the University with the incentive
compensation requirements, as well as instances of noncompliance with the disbursements, and
return of Title IV, HEA program funds requirements. The University

            Designed a compensation plan for enrollment advisors that provided incentive
             payments based on success in securing enrollment and did not establish that its plan
             and practices qualified for the regulatory safe harbors (see Finding No. 1);
            Did not properly perform return of Title IV aid calculations, resulting in the improper
             retention of $29,036 of Title IV, HEA program funds for 38 of the 85 the students in
             our samples (based on statistical sampling techniques, we are 90 percent confident
             that the University improperly retained at least $1.1 million in Title IV, HEA program
             funds during award year 2006-2007 (see Finding No. 2));
            Did not return Title IV, HEA program funds timely (see Finding No. 3);
            Retained student credit balances without proper authorizations (see Finding No. 4);
            Did not always disburse Title IV, HEA program funds in accordance with Federal
             regulations or its own policy (see Finding No. 5); and
            Did not maintain supporting documentation for students’ leaves of absence (see
             Finding No. 6).

Except for the disbursement and leaves of absence issues noted above, the University generally
complied with the student eligibility requirements.

FINDING NO. 1 – Compensation Plan Included Incentive Payments and the
                University Did Not Establish Eligibility for Safe Harbor

The University designed a compensation plan for enrollment advisors that provided incentive
payments based on success in securing enrollment. Although changes to salaries were made
only every 6 months, the University provided managers with discretion to adjust salaries within
each of the salary ranges and did not document on what basis it adjusted salaries. The University
could not demonstrate that its enrollment advisors’ salary adjustments were not based solely on
success in securing enrollment. Therefore, we could not determine whether the University’s
compensation plan and practices qualified for the safe harbor for salary adjustments found in
34 C.F.R. § 668.14(b)(22)(ii)(A).

Under the compensation plan that the University implemented in April 2007, enrollment advisors
could earn salaries in excess of $27,474 a year only if they earned additional evaluation points
that were based directly and indirectly on success in securing enrollments.7 According to the

7
 We evaluated only the April 2007 compensation plan as that plan made substantial changes to the plan in effect
earlier in our audit period; the revised plan also continued after our audit period.
Final Report
ED-OIG/A05I0014                                                                                     Page 8 of 155

University’s compensation plan, enrollment advisors’ salaries were to be based on the total
number of points received on the evaluation matrix, which established salary ranges for various
point totals. Every 6 months, the University evaluated enrollment advisors’ performance in
18 categories. Of the 18 categories, 8 were based directly or indirectly on success in securing
enrollments. Those 8 categories could account for 74 of the maximum 100 evaluation points that
an enrollment advisor could receive. The April 2007 compensation plan revised the weighting of
points previously available. Under the prior plan, only 35 points were based on success in
securing enrollments; 65 points were based on other factors. Specifically for our incentive
compensation objective, we evaluated the University's compensation plan that was in effect from
April 2007 through December 2008. We did not evaluate any of the University's compensation
plans that were in effect either before or after this period.

Of the 74 points in the April 2007 plan that were based on securing enrollments, 72 consisted of
various statistics and ratios constructed from the number of leads, applications received, and the
number of students who started classes.8 The most heavily weighted category, “Net Starts,”
allowed an enrollment advisor to earn up to 30 points based on the number of students who
submitted applications and completed their first course.9 In addition to the 30-point “Net Start”
category, the evaluation matrix included three 12-point categories and three 2-point categories
that were directly or indirectly attributable to the enrollment advisor’s success in securing
enrollments:

            12-point Categories: (1) ratio of applications to students who start the first week
             (Gross Starts), (2) the ratio of applicants to Net Starts, and (3) the ratio of Gross
             Starts to Net Starts.

            2-point categories: (1) ratio of leads to applications, (2) ratio of leads to Net Starts,
             and (3) average number of applications per week.

Although its title suggests otherwise, another 2-point category, “Informs Supervisor and
Affected Personnel of Status of Current Assignments,” was, in fact, directly related to securing
enrollments because the rating criterion for this category required the enrollment advisor to meet
numeric team goals. In interviews with admission staff, we learned that enrollment advisors
received numeric weekly and monthly goals. These goals included a set number of applications,
retaining students (a number of net starts), or number of referrals.

With 74 of the 100 points directly or indirectly attributable to success in securing enrollments, an
enrollment advisor could earn a maximum of $27,474 in the University’s $24,000 to $110,000
salary range from the 26 points that were not based on securing enrollments. To earn a salary
that exceeded $27,474, an enrollment advisor would have had to earn additional evaluation
points that were based directly and indirectly on success in securing enrollments.



8
  Specific examples of the data in the evaluation matrices are based on the evaluation matrix used from April 2007
through December 2008 for enrollment advisors after their first 6 months of employment.
9
  The length of the course depends on the program: graduate program courses are 6-weeks; bachelor program
courses are 5-weeks; and the associate program courses are 8-weeks.
Final Report
ED-OIG/A05I0014                                                                                       Page 9 of 155

According to Section 487(a)(20) of the HEA and 34 C.F.R. § 668.14(b)(22)(i), incentive
payments based directly or indirectly upon success in securing enrollments are prohibited. The
University’s compensation plan violates this prohibition. However, a school’s practices are not
considered to violate this provision if they qualify for a safe harbor in 34 C.F.R.
§ 668.14(b)(22)(ii).10

According to 34 C.F.R. § 668.14(b)(22)(ii), activities that an institution may carry out without
violating the provisions of 34 C.F.R. § 668.14(b)(22)(i) include
                  
         The payment of fixed compensation, such as a fixed annual salary or a fixed hourly wage,
         as long as that compensation is not adjusted up or down more than twice during any
         twelve month period, and any adjustment is not based solely on the number of students
         recruited, admitted, enrolled, or awarded financial aid. . . .

Actual Salaries Were Not Calculated Based on the University’s Compensation Plan
We could not confirm the basis on which the University calculated and adjusted salaries.
Therefore, we could not determine that the salaries were not adjusted solely based on success in
securing enrollments. Our tests showed that enrollment advisors’ actual salaries were not always
based on the University’s compensation plan. Of the 27 salary adjustments that we reviewed, 15
percent of the resulting salaries were outside the ranges specified by the evaluation matrix, and
92 percent did not match the salary that would be expected under the compensation plan
explained to us during our audit.

During our audit, University officials informed us that the points on the matrix were the basis for
salary adjustments. The University maintained a Personnel Change Form that documented
changes in salary. The Personnel Change Form documented the salary that the enrollment
advisor received during the prior evaluation period and the salary that the enrollment advisor
would receive for the subsequent evaluation period. The salary could be the same, higher, or
lower than the salary for the prior evaluation period. However, the University did not provide us
with written procedures for calculating enrollment advisors’ salaries or with documents that
supported the actual salary calculations. In response to our draft report, the University stated that
managers had discretion to set salaries within a salary range. According to the evaluation matrix,
salary ranges corresponded to the points an enrollment advisor received on the evaluation.

Our interviews indicated that enrollment advisors and their managers understood that the points
on the evaluation matrix determined the salaries that enrollment advisors received. However,
only two officials, a Director of Admissions and the Admissions Performance Assessor,
explained how points were used to calculate the salaries. They were the only 2 of the 22
enrollment advisors or their managers interviewed who could provide us with an example of how
the points were applied. The two officials explained that the formula used to calculate the salary
was based on the number of points an enrollment advisor received and the corresponding salary
for those points on the matrix.


10
   Pursuant to final regulations issued on October 29, 2010, the safe harbors will be eliminated, effective
July 1, 2011.
Final Report
ED-OIG/A05I0014                                                                    Page 10 of 155

We reviewed the personnel files for a sample of 45 enrollment advisors randomly selected from
a universe of 262 enrollment advisors who were active employees at any point during award year
2006-2007. Of the 45 enrollment advisors, 12 had at least one evaluation from the evaluation
matrix in effect from April 2007 through December 2008. The 12 enrollment advisors had a
total of 27 evaluations from the matrix in effect April 2007 through December 2008.

Because the University did not provide any documentation during our audit showing how
enrollment advisors’ salaries were calculated, we used the formula orally provided by a Director
of Admissions and the Admissions Performance Assessor to verify that salaries received were
calculated using the points the enrollment advisors received on their evaluations. For the
27 evaluations, 92 percent of salaries received did not match the amount that we calculated using
the formula provided: 16 (59 percent) were more than the formula calculation and 9 (33 percent)
were less than the formula calculation. Only 2 (7 percent) were equal to the formula
calculation.11

We also determined that 4 of the 27 evaluations (15 percent) resulted in salaries that were outside
the salary ranges associated with the total points the enrollment advisors received.  For one
evaluation, the salary that the enrollment advisor received was $1,000 less than the salary range
for the points received.  For three other evaluations, the salaries that the enrollment advisors
received were more than the salary range for the points received. These enrollment advisors’
salaries were $1,000, $6,500, and $7,000 more than the maximum amount allowed per the
matrix. Our analysis demonstrates that the University did not always calculate salaries based on
the points and salary ranges identified on the matrix. In addition, the University did not provide
documentation to show how it calculated the actual salaries. 

Institutions Are Required to Maintain Records Documenting Proper Administration of
Title IV, HEA Programs
According to 34 C.F.R. § 668.24(a)(3), “An institution shall establish and maintain, on a current
basis . . . program records that document . . . [i]ts administration of the Title IV, HEA programs
in accordance with all applicable requirements . . . .”

University policy did not require managers to maintain supporting documentation for enrollment
advisors’ evaluations and salary calculations. Enrollment advisors’ managers stated in
interviews that documentation supporting an enrollment advisor’s evaluation was not
maintained, and there was no written guidance on the evaluation matrix. University officials,
including the Senior Vice President of Admissions, the Director of Admissions, and enrollment
managers, stated that the evaluation matrices were “self-explanatory” and guidance on
completing the evaluations was not necessary.

After we completed our interviews and analyses, the University informed us that it did not apply
the compensation plan as explained to us by two of its officials. Instead, the University informed
us that managers had discretion, within the parameters of the compensation plan, in translating
total points into a salary adjustment. The University also stated that the compensation plan did
not specify how managers should determine salary within each range, asserting that there were a

11
     The percentages do not equal 100 percent due to rounding.
Final Report
ED-OIG/A05I0014                                                                      Page 11 of 155

number of ways one could translate points into salary consistent with the University’s
compensation plan.

The fact that managers had discretion to set salaries within a range confirms our conclusion that
the University cannot demonstrate that its compensation plan and practices qualify for the safe
harbor. Once an enrollment advisor earned the points needed to qualify for a particular salary
range, the enrollment advisor’s salary could vary by $9,000 to $34,000. Yet the University
provided no records to document the basis on which any manager exercised discretion and
adjusted a salary to a particular salary within the various ranges. Therefore, despite having
designed a highly incentivized compensation plan where eligibility for a higher salary range was
directly based on securing enrollments, the University did not document that a salary adjustment
was not based solely on success in securing enrollment.

Because the University did not provide documentation to show how the points were used to
calculate salary adjustments, it did not demonstrate that the adjustments were based on factors
other than securing enrollment. Therefore, it did not establish that it qualified for the regulatory
safe harbor. Our testing disclosed that, for 92 percent (25 of 27) of the evaluations in our
sample, the salary adjustments were not based on the compensation plan as described to us
during the audit. Further, for 15 percent (4 of 27) of the evaluations in the sample, the
employees received salaries that were outside of the salary ranges associated with the points
received on the evaluations,

Recommendations

We recommend that the Chief Operating Officer (COO) for Federal Student Aid (FSA)

1.1    Require the University to provide records of all salary adjustments made during our audit
       period and any documentation, not disclosed to the Office of Inspector General (OIG),
       that demonstrates that any specific adjustments qualified for the safe harbor described in
       34 C.F.R. § 668.14(b)(22)(ii)(A).

1.2    For all salary adjustments that do not qualify for the safe harbor, take appropriate action
       under 34 C.F.R. Part 668, Subpart G.

University Comments and OIG Response

The University objected to the finding and the recommendations. We summarize and respond to
the University’s comments below.

University’s General Comments: The University stated that its compensation plan included no
bonus, commission, or other incentive payment. Therefore, it does not come under the coverage
of the HEA’s incentive compensation statute (20 U.S.C. 1094(a)(20)). Nevertheless, the
University stated that it satisfied the applicable safe harbor because it did not base salary
adjustments solely on the number of students recruited, and it maintained records to demonstrate
that fact.
Final Report
ED-OIG/A05I0014                                                                     Page 12 of 155

The University commented that the OIG auditors were unable to determine whether the
University violated the incentive compensation statute and had, in fact, concluded that the
University’s salary adjustments were not solely based on enrollment. The University also had a
statistical report prepared by an outside consultant. According to the consultant’s report, the
University’s salary adjustments were not based solely on securing enrollments. In addition, the
University stated that it was not required to maintain multiple levels of documentation to
demonstrate its compliance. Finally, the University stated that, during our audit period, it
provided discretion to its managers to set individual salaries. However, it has since made
changes to ensure that all salary adjustments are made uniformly and in accordance with its
designed compensation plan.

OIG Response: We clarified our finding in response to the University’s comments. We also
revised the recommendation regarding the documentation that FSA should require the University
to provide and the recommendation that FSA should take appropriate action under 34 C.F.R.
Part 668, Subpart G. However, the University’s comments did not provide us with a basis to
alter our overall conclusions on its incentive compensation practices. The University did not
provide any additional documentation and did not dispute the fact that its compensation plan
awarded at least 74 of the available 100 points based on success in securing enrollments. The
University is incorrect in its assertion that we were unable to reach a conclusion about its
compensation practices. We concluded that its compensation plan included incentive payments
in the form of salaries based on success in securing enrollment. What we could not conclude
was whether the University’s actual salary adjustments qualified for the regulatory safe harbor.
Only 2 of the 27 salary adjustments that we examined matched the salary that we expected under
the compensation plan explained to us by 2 admissions officials. Of the other 25 salary
adjustments, 16 were higher than we expected, and 9 were lower than we expected.

University Comment on Formula and Discretion: The University stated that managers had
discretion, within the parameters of the compensation plan, in translating total points into a
salary adjustment. The University also stated that the compensation plan did not specify how
managers should determine salary within each range, asserting that there were a number of ways
one could translate points into salary consistent with the University’s compensation plan.

OIG Response: The University did not describe the parameters of discretion provided or explain
how the discretion was to be exercised. Except for comments on four evaluations provided on
January 10, 2011 (which we discuss below), the University also did not provide any explanation
or documentation demonstrating the reasons for any particular salary adjustment. During our
audit, none of the officials that we interviewed stated that managers had the discretion to adjust
salaries within a range, and two of the officials told us that the evaluation points from the matrix
directly determined the salary. Given the University’s statement that it provided discretion and
adjusted salaries for reasons that are not documented, the University cannot establish that salaries
provided under its highly incentivized compensation plan qualify for the safe harbor.

University Comment That Statutory Prohibition Does Not Cover Salaries: The University stated
that its compensation plan does not include any bonus, commission, or other incentive payments.
Therefore, it does not come under the coverage of the HEA’s incentive compensation statute
(20 U.S.C. 1094(a)(20)).
Final Report
ED-OIG/A05I0014                                                                      Page 13 of 155

OIG Response: We disagree with the University’s assertion that salaries are excluded from the
statutory prohibition on incentive payments. If salaries were excluded from the statutory
prohibition, then the regulatory safe harbor would serve no purpose.

University Comment on Consultant’s Report on the OIG’s Analysis: The University hired a
consultant to conduct a statistical analysis of the salaries of enrollment advisors and included the
consultant’s report with its comments (See APPENDIX C). The consultant concluded that (1)
the effective weights of qualitative criteria exceeded the weights that were embedded in the
evaluation system designs at the University; (2) the observed patterns of quantitative ratings,
qualitative ratings, and salary adjustments are inconsistent with the hypothesis that salary
adjustments were solely determined by quantitative ratings; and (3) the observed patterns of
quantitative and qualitative ratings are inconsistent with certain types of manager behavior which
could have muted the role of enrollment advisors’ qualitative ratings and boosted the role of their
quantitative performance in determining salary adjustments.

The consultant also concluded that the differences between actual salaries and salaries based on
formulas communicated by University officials to the OIG did not disproportionately benefit
enrollment advisors with high quantitative (incentive) ratings. The higher the quantitative rating,
the smaller or more negative the difference between actual and expected salary.

OIG Response: Given the University’s statements that it did not use a formula to set salaries and
that supervisors had discretion to determine salaries for reasons that are not documented, a
statistical analysis cannot demonstrate the basis for the University’s adjustments to individual
salaries. The consultant’s analysis appears to support rather than refute our finding: for
enrollment advisors’ compensation that was determined using the April 2007 matrix (the matrix
we reviewed in our finding), the analysis does not find any consistent relationship between
enrollment advisors’ salaries and their quantitative and qualitative ratings.

The consultant’s conclusion that quantitative ratings were not the sole factors used to determine
salary adjustments assumes that, if a salary adjustment was not based solely on the quantitative
ratings defined in the April 2007 matrix, any additional factor upon which the salary adjustment
was based must have been a qualitative factor. This assumption is not confirmed by the
consultant’s analysis of the correlation between the qualitative ratings and salaries that we
reviewed; for those salaries and ratings, the consultant concluded that while the correlation with
qualitative factors appeared positive, it was “not statistically significant.” Nor is the assumption
adequately supported by the consultant’s subsequent analysis, which was performed using
additional data selected by the consultant. That subsequent analysis mixed 58 performance
evaluations from the April 2007 matrix period (which was included in our review) with 61
performance evaluations using the January 2009 matrix (which was outside of our review). The
January 2009 matrix was implemented before we first discussed the initial results of our audit
with the University.

Any additional factor or factors upon which the enrollment advisors’ salaries were finally
adjusted after the exercise of discretion by the University remain unidentified. The final salaries
could have been based on qualitative factors, selected or additional quantitative factors, other
factors, or the subjective or arbitrary judgment of the University. Since the analysis does not
Final Report
ED-OIG/A05I0014                                                                     Page 14 of 155

provide evidence that each salary adjusted under the April 2007 matrix was not based solely on
quantitative factors, we cannot change our finding that we were unable to determine whether the
University’s compensation plan as implemented qualified for the safe harbor.

University Comment on Our Audit Documentation: Analyses included by the OIG in its audit
documentation also concluded that non-incentive points did appear to affect salary and indicated
that, if the University used the matrix to calculate enrollment advisors’ salaries, it would likely
be in compliance with the safe harbor.

OIG Response: Our audit documentation does not contradict our final conclusion that
compliance with the regulatory safe harbor cannot be determined from the University’s records.
The audit documentation included as an attachment to the University’s comments expressed only
a tentative conclusion that, if the University applied its salary matrix, it would appear to satisfy
the safe harbor. According to the University, however, it did not apply the matrix as explained
to us by two of its officials, but instead provided discretion for salaries to be adjusted over wide
ranges for undocumented reasons. The tentative conclusion was reached prior to the
University’s explanation of the role of discretion in its compensation plan.

University Comment on Records, Burden of Proof, and Documentation: The University stated
that there is no requirement that an institution maintain multiple levels of personnel records to
show that it did not violate the safe harbor. The audit improperly shifts the burden of proof to
the institution when the government has the burden to establish a violation. The University also
commented that it complied with applicable record-keeping requirements. The data for the
quantitative performance factors were obtained from its database systems and recorded on the
evaluation matrices for each enrollment advisor. The University maintained the matrices in the
employees’ permanent records. Regarding support for the qualitative performance factors,
evaluation matrices contained descriptions of the performance requirements necessary to obtain
an evaluation for each ranking. The University maintained the records (evaluation matrices)
reflecting the results of the evaluations for each enrollment advisor and provided them to the
audit team during the audit.

OIG Response: The University misstates its obligations with respect to the safe harbor. Having
established a highly incentivized compensation plan that violates the general prohibition against
incentive compensation found in § 487(a)(20) of the HEA and 34 C.F.R. § 668.14(b)(22)(i), the
University must be able to demonstrate that it qualifies for the safe harbor in 34 C.F.R.
§ 668.14(b)(22)(ii)(A). Though we agree that there is no requirement for an institution to
maintain multiple levels of personnel records related to its compensation practices, the
University is required to maintain documentation sufficient for us to determine that it
implemented its compensation plan as designed and adjusted salaries for reasons not solely based
on success in securing enrollment. This is not a shift in the burden of proof. Although the U.S.
Department of Education (Department) does have the burden of proof if it brings an
administrative action under 34 C.F.R. Part 668, Subpart G, an institution is always obligated to
maintain documentation sufficient to demonstrate compliance with Title IV, HEA program
requirements.
Final Report
ED-OIG/A05I0014                                                                     Page 15 of 155

Based on the University’s comments and additional review of the documentation, we agree that
the University maintained completed evaluation matrices for each enrollment advisor that we
reviewed during our audit. The University also maintained completed personnel change forms
documenting approval of salary adjustments. However, the University did not maintain
documentation that tied the results of the evaluation matrices to the salary adjustments. We
made changes to the finding clarifying that the documentation maintained was not sufficient to
determine how the points received on the evaluation matrices corresponded to the salary
adjustments.

University Comment on Changes to its Compensation Plan: The University stated that it has
implemented new procedures and now evaluation points translate to salary in the same manner as
described to the audit team by the two employees referenced in the draft audit report. The
University made the changes after the audit started but before the exit interview or receipt of the
draft audit report. Enrollment managers now must complete and submit to Human Resources
management their qualitative evaluations before being provided the data on which the
quantitative score is determined. According to the University, the enrollment managers are not
aware of quantitative performance when they complete the qualitative elements. The change was
done to ensure uniformity and to ensure that the compensation plan was implemented as
designed.

OIG Response: Because the University made the changes after our audit period, we have not
evaluated whether the changes have been implemented or whether the changes would enable the
University to qualify for the regulatory safe harbor. However, based on our interviews,
managers may access, at any time, systems that contain the data needed to complete the
quantitative section of the evaluation. Unless this access has been restricted, managers still will
be aware of the quantitative data before completing the qualitative portion of the evaluation.

We also note that, pursuant to final regulations issued on October 29, 2010, the safe harbors will
be eliminated, effective July 1, 2011.

University Comments on Four Evaluations with Salary Adjustments Outside the Salary Ranges:
In a January 10, 2011, letter to the Assistant Inspector General for Audit, the University provided
explanations for the four evaluations in which the enrollment advisors received salaries outside
of the salary ranges associated with the points they received on their evaluations (See
APPENDIX E). The University stated that, for one of the evaluations, the enrollment advisor’s
promotion was soon to take effect. That is why the salary was lower than expected. For two of
the evaluations, the University stated that the enrollment advisors had a decline in performance
compared to the prior evaluation period. That is why the salaries were higher than expected. For
the fourth evaluation, the University stated that the personnel file did not indicate why the
manager chose to adjust the salary above the range.

OIG Response: The University did not provide any documentation to support the reasons that it
gave for the enrollment advisors receiving salary adjustments outside of the salary ranges for the
points received. The University did provide documentation to support that the one enrollment
advisor received a promotion. However, it did not provide documentation to support that the
salary was not adjusted, based on the evaluation matrix, because a promotion was expected to be
Final Report
ED-OIG/A05I0014                                                                                Page 16 of 155

processed in the near future. For the other three evaluations, the University provided no
supporting documentation. For one of the three evaluations, the University acknowledges that
the personnel records did not indicate why the enrollment advisor received a higher salary than
the salary range for the points received on the evaluation matrix. For the other two evaluations
the University claims that the managers did not follow the evaluation matrix in order to “soften
the blow” for enrollment advisors’ poor performance. The University did not provide any
evidence from the personnel records to support the managers’ reasons for giving the enrollment
advisors salaries above the salary ranges for the points on their evaluation matrices.

FINDING NO. 2 – Incorrect Return of Title IV Aid Calculations

The University did not properly calculate the amounts it was to return to Title IV, HEA
programs. The University did not (1) revise the payment period end date for students who did
not complete their credits according to schedule; (2) use the last date of attendance at an
academically related activity as the withdrawal date; and (3) correctly project the tuition charges
that would have been charged to the students if they had completed the credits for the semester.
As a result, the University improperly retained $29,036 of Title IV, HEA program funds for
38 of the 85 (45 percent) students in our samples. Based on statistical sampling techniques, we
are 90 percent confident that the University improperly retained at least $1.1 million in 2006-
2007 Title IV, HEA program funds.

Distance education students at the University are enrolled in credit-hour, non-term programs.
Federal regulations at 34 C.F.R. § 668.22(e) and (g) require, among other requirements, that
return of Title IV aid calculations be based on the total number of days in the payment period
and tuition charges applicable for the payment period. Institutions, such as the University, that
are not required to take attendance must use the midpoint of the payment period as a student’s
withdrawal date unless the institution chooses to use the student’s last date of attendance at an
academically related activity as the withdrawal date (34 C.F.R. § 668.22(c)(1)(iii) and (3)(i)).
The University chose to use a student’s last date of attendance at an academically related activity
as the withdrawal date. Institutions that have non-term, self-paced programs are required to
project the completion date of the payment period based on the student’s progress during the
payment period. (Dear Colleague Letter GEN-04-03, Return of Title IV Aid (Revised
November 2004)).

Samples Used to Identify Calculation Errors
To determine whether the University properly handled return of Title IV aid calculations, we
used one judgmental sample and two random samples generated from two universes provided to
us by the University.

           Return of Title IV Aid Universe. The first universe provided by the University
            consisted of 3,779 distance education students who received Title IV, HEA program
            funds and withdrew or had a zero grade point average (GPA),12 or both, during award
            year 2006-2007. From this universe, we selected two samples: one judgmental and

12
 A student with a zero GPA potentially could be a student who withdrew from the University without notifying the
University.
Final Report
ED-OIG/A05I0014                                                                                  Page 17 of 155

               one random. We judgmentally selected 24 students. The 24 students in this sample
               were judgmentally selected to provide coverage of students who withdrew, students
               with a zero GPA, and students who had Title IV, HEA program funds returned and
               students who did not. We selected 10 students who withdrew and had a zero GPA
               (5 who had Title IV, HEA program funds returned and 5 who did not); 9 students
               who withdrew and did not have a zero GPA (5 who had Title IV, HEA program funds
               returned and 4 who did not); and 5 students who did not withdraw and had a zero
               GPA (3 who had Title IV, HEA program funds returned and 2 who did not). We then
               randomly selected 50 students from the universe of 3,779.

              Leave of Absence Universe. The second universe provided by the University
               consisted of 587 distance education students who received Title IV, HEA program
               funds and were placed on a leave of absence during award year 2006-2007. We
               randomly selected 40. We performed return of Title IV aid testing for 12 of the 40
               students who did not return from their leaves of absence as of the end dates of their
               leaves of absence and who had a return of Title IV aid calculation performed.13

Improper Determination of the Payment Period Length
The University did not use the appropriate payment period end dates when it calculated the
percentage of Title IV aid earned. A student’s semester begins with the first course and ends
when the student has successfully completed 12 credits for undergraduate students or 9 credits
for graduate students. Students enrolled in a bachelor or graduate degree program generally take
one course at a time. The course is 5 or 6 weeks long. Students enrolled in an associate degree
program generally take two courses at a time. The courses are 8 weeks long. Distance education
students are allowed to take a break between courses for up to 29 days without being withdrawn
from the University. A student’s semester could be extended if the student does not successfully
complete a course or if the student takes a break between courses.

If a student successfully completed his or her courses and did not take any breaks between
courses prior to withdrawal, we assumed that the student would have completed the payment
period on the originally scheduled end date. If the student did not successfully complete his or
her courses, or if the student took breaks between courses prior to withdrawal, we used the
guidance in Dear Colleague Letter GEN-04-03, Return of Title IV Aid (Revised November 2004)
and the formula provided to perform the return of Title IV aid calculations. We determined the
number of credit hours a student had completed and the number of days the student had attended
for the payment period prior to withdrawing. We used that information to determine, on
average, the number of days it took the student to complete each credit hour. We used that
average to project the number of additional days it would take a student to complete the payment
period.

The results of our samples showed that the University did not always properly revise the
payment period end date for students who did not successfully complete their credits according
to schedule. If a student did not successfully complete a course in the payment period, the
University recalculated the payment period end date, taking into consideration courses the

13
     One student in the Leave of Absence sample was also in the Return of Title IV Aid sample.
Final Report
ED-OIG/A05I0014                                                                                  Page 18 of 155

student had failed or did not successfully complete during the payment period. Generally, the
University extended the payment period by the number of days required to complete the course,
starting consecutively after the end date of the class from which the student withdrew. However,
according to guidance in Dear Colleague Letter GEN-04-03, Return of Title IV Aid (Revised
November 2004), the University should have used the student’s progress as of the withdrawal
date to determine the total number of calendar days for that student’s payment period. As a
result of the University improperly determining the number of days in the payment period, the
University overestimated the percentage of days that the students completed during the semester.
We identified 33 payment period end date errors (39 percent) for the 85 students in our samples. 

Incorrect Last Date of Attendance
University policy states that a student must attend 2 days each week to be considered in
attendance for that week. The University considers a week to be from Tuesday through Monday.
A student’s academic activity is documented in the University’s on-line learning management
system. However, the University did not review data from the system for academic activity to
confirm attendance. Instead, the University reviewed a log generated from the system for the
number of times each student clicked into his or her on-line learning management system course
each day. The attendance clicks were recorded when the student logged onto the screen for the
learning block for the week for the course in which he or she was enrolled. The click generated
on the log might or might not have been related to academic activity. If the student clicked into
his or her course at least 2 days during a given week, the University considered the student to
have met the attendance requirements for the week. The University then used the last date of
that week as the last date of attendance. For example, if a student’s last click into a course was
on Thursday, and the student had a minimum of two clicks on different days for that week, then
the University considered the last date of attendance to be the following Monday, the last day of
the University-defined week. This attendance policy is contrary to 34 C.F.R. § 668.22(c)(3),
which defines the last date of attendance as the last date of academically related activity, not the
last date of the week in which the student visited a course Web site 2 days during the week.

The University did not always use the date of the student’s last academic activity as the student’s
withdrawal date when performing return of Title IV aid calculations. We reviewed data from the
University’s on-line learning management system to determine the last week in the course in
which the student had academic activity on at least 2 days. As support for academic activity, we
reviewed the on-line learning management system information for evidence of discussion
postings related to the coursework, completed quizzes, and homework submissions. We did not
consider any type of click to be evidence of academic activity. We used the last date of
academic activity in that week, not the end of the week, as the withdrawal date for recalculating
the amount the institution was permitted to retain. If the student received a passing grade (A, B,
C, or D) in the course from which the student withdrew, we considered the student to have
attended through the last date in that course.14 When we compared the last date of academic
activity with the withdrawal date that the University used for its return of Title IV aid




14
  Students generally only take one to two courses at a time, depending on the degree program. Therefore, a student
can successfully complete a course and not have completed the entire term and still be considered a withdrawal.
Final Report
ED-OIG/A05I0014                                                                                    Page 19 of 155

calculations, we determined that the withdrawal date that the University used for its calculations
was incorrect for 47 (55 percent)  of the 85 students in our samples.15

            For 12 (14 percent) of the 85 students, the University used the last day of the week as
             the last date of attendance when the last day of an academically related activity
             occurred on a day earlier in that week.16 The University identified the correct week
             in which the student last attended but did not use the correct last date of attendance in
             that week.

            For 28 (33 percent) of the 85 students, the University used a last date of attendance in
             a week that was earlier or later than the last week in which the student had
             academically related activity.

                 For 3 (11 percent) of the 28 students, we used a date from a week after the week
                  used by the University because we counted posted assignments and exams taken
                  that did not show up on the log of clicks.

                 For 25 (89 percent) of the 28 students, we used a date in a week earlier than the
                  week that the University used because the last activity on the log of clicks was not
                  academic in nature. Therefore, we used the date of the last date of academically
                  related activity.

            For 9 (11 percent) of the 85 students, the University determined that the students
             attended during the payment period, even though the students’ records did not support
             such an attendance determination. The University considered the students to have
             met the attendance requirements based on the log of clicks. However, our review
             indicated that there was no academically related activity on 2 days in any week during
             the students’ courses to support attendance. Therefore, these students never attended
             during the payment period.

Improper Projection of Tuition Charges
The University used the wrong tuition charges when determining the amount of Title IV, HEA
program funds it had to return to the Department or lenders for 20 (24 percent) of the 85 students
in our samples. Students were charged tuition for one course at a time instead of being charged
tuition for the entire semester. Using the student’s University-determined grade level for the
semester from which the student withdrew, the University projected the additional courses the
student would have completed had he or she remained enrolled for the entire semester. We used
the student’s class schedule for the semester in which he or she withdrew to project the tuition
that would have been charged to the student had the student completed the semester. When we

15
   One student was in the Leave of Absence sample and the Return of Title IV Aid sample and had an incorrect last
date of attendance in both samples. For the bullet points, there are students represented in one bullet point that
could be represented in another bullet point because students might have withdrawn more than once during the
award year.
16
   One student was in the Leave of Absence sample and the Return of Title IV Aid sample and had an incorrect last
date of attendance (both samples) because the University used the last day of the week as the last date of attendance
when the actual last date of academically related activity was earlier in the week.
  Final Report
  ED-OIG/A05I0014                                                                                 Page 20 of 155

  compared our projected tuition charges to the tuition charges that the University used for its
  return of Title IV aid calculations, we determined that the University did not always correctly
  project the tuition charges for the students in our samples.

  The overall results of our return of Title IV aid testing are summarized in Table 4.

  Table 4. Improper Return of Title IV Aid Calculations
                                                                   Improper           Incorrect
                 Sample        Sample Size                       Determination        Last Date       Improper
                  Size        (Withdrawals)        Universe       of Payment             of            Tuition
  Sample       (Students)                            Size        Period Length       Attendance        Charges
Judgmental
Return of
Title IV Aid       24                24              3,779               8                16                  7
Random
Return of
Title IV Aid       50                57              3,779              21                25              10
Leave of
Absence            12                13               587                4                 7                  2

  Institutions Are Required to Properly Calculate the Amount of Earned and Unearned
  Title IV, HEA Program Funds
  According to 34 C.F.R. § 668.22(c)(1)

          For purposes of this section, for a student who ceases attendance at an institution that is
          not required to take attendance, the student’s withdrawal date is—
                   (i) The date, as determined by the institution, that the student began the
          withdrawal process prescribed by the institution;
                   (ii) The date, as determined by the institution, that the student otherwise provided
          official notification to the institution, in writing or orally, of his or her intent to withdraw;
                   (iii) If the student ceases attendance without providing official notification to the
          institution of his or her withdrawal . . . the mid-point of the payment period (or period of
          enrollment, if applicable) . . . .

  According to 34 C.F.R. § 668.22(c)(3)

                    (i) . . . [A]n institution that is not required to take attendance may use as the
          student’s withdrawal date a student’s last date of attendance at an academically-related
          activity provided that the institution documents that the activity is academically related
          and documents the student’s attendance at the activity.
                    (ii) An “academically-related activity” includes, but is not limited to, an exam, a
          tutorial, computer-assisted instruction, academic counseling, academic advisement,
          turning in a class assignment or attending a study group that is assigned by the institution.

  Although the University is not required to take attendance, it elected to calculate the amount to
  return to Title IV, HEA programs using the student’s last date of attendance instead of the mid-
  point of the payment period or period of enrollment.
Final Report
ED-OIG/A05I0014                                                                             Page 21 of 155

According to 34 C.F.R. § 668.22 (a)(1),

        When a recipient of title IV grant or loan assistance withdraws from an institution
        during a payment period or period of enrollment in which the recipient began
        attendance, the institution must determine the amount of title IV grant or loan assistance
        . . . that the student earned as of the student’s withdrawal
        date . . . .

According to 34 C.F.R. § 668.22(e)

                (1) General. The amount of title IV grant or loan assistance that is earned by the
       student is calculated by—
                (i) Determining the percentage of title IV grant or loan assistance that has been
       earned by the student . . . ; and
                (ii) Applying this percentage to the total amount of title IV grant and loan
       assistance that was disbursed (and that could have been disbursed . . .) to the student, or
       on the student's behalf, for the payment period or period of enrollment as of the student's
       withdrawal date.

                                        . . . . . . .

                (4) Total amount of unearned title IV assistance to be returned. The unearned
       amount of title IV assistance to be returned is calculated by subtracting the amount of
       title IV assistance earned by the student . . . from the amount of title IV aid that was
       disbursed to the student as of the date of the institution’s determination that the student
       withdrew.

According to 34 C.F.R. § 668.22(a)(3),

       If the total amount of title IV grant or loan assistance, or both, that the student earned as
       calculated under paragraph (e)(1) of this section is greater than the amount of title IV
       grant or loan assistance that was disbursed to the student or on behalf of the student in the
       case of a PLUS loan, as of the date the institution’s determination that the student
       withdrew, the difference between these amounts must be treated as a post-withdrawal
       disbursement . . . .

According to 34 C.F.R. § 668.22(g),

               (1) The institution must return . . . the lesser of—
               (i) The total amount of unearned title IV assistance to be returned . . . ; or
               (ii) An amount equal to the total institutional charges incurred by the student for
       the payment period or period of enrollment multiplied by the percentage of title IV grant
       or loan assistance that has not been earned by the student . . . .
               (2) For the purposes of this section, “institutional charges” are tuition, fees, room
       and board . . . and other educationally-related expenses assessed by the institution.
Final Report
ED-OIG/A05I0014                                                                                Page 22 of 155

According to 34 C.F.R. § 668.173(c)(1),

          An institution does not comply with the reserve standard under § 668.173(a)(3) if, in a
          compliance audit conducted under §668.23, an audit conducted by the Office of the
          Inspector General, or a program review . . . , the auditor or reviewer finds –
                   (i) In the sample of student records audited or reviewed that the institution did
          not return unearned title IV, HEA program funds within the timeframes described in
          paragraph (b) of this section for 5% or more of the students in the sample.

Dear Colleague Letter GEN-04-03, Return of Title IV Aid, Revised (November 2004) states

          We recognize that in a credit-hour nonterm program, the ending date for a period and,
          therefore, the total number of calendar days in the period, may be dependent on the pace
          at which an individual student progresses through the program. Therefore, for a student
          who withdraws from a credit-hour nonterm program where the completion date of the
          period is dependent on an individual student’s progress, an institution must project the
          completion date based on the student’s progress as of his or her withdrawal date to
          determine the total number of calendar days in the period.

University Retained Incorrect Amounts of Title IV, HEA Program Funds
Because it did not properly perform the return of Title IV aid calculations, the University
(1) returned less in Title IV, HEA program funds than it was required to return by Federal
regulations and (2) made post-withdrawal disbursements that exceeded what the students were
entitled to receive. For the students in our three samples, the University improperly retained
$29,036 in Title IV, HEA program funds.17 Table 5 shows the effect of the return of Title IV aid
calculation errors. Multiple errors were made for 30 students. 

Table 5. Effect of Improper Return of Title IV Aid Calculations
                                                                      Title IV, HEA Program Funds
     Judgmental Return of Title IV Aid                                    Retained by University
     Sample Results                                   Students           Excess           Less
     Underpaid lender or Department                       4              $ 6,260
     Overpaid lender or Department
     Overdisbursed post-withdrawal                         7              $ 1,253
     Underdisbursed post-withdrawal                        2                               $ 2,046
     Totals                                               13              $7,514           $ 2,046




17
  The $29,036 consists of $15,377 in Unsubsidized Stafford loans; $8,956 in Subsidized Stafford Loans; and $4,703
in Pell. Of the improperly retained funds, $7,514 came from the Judgmental Return of Title IV Aid sample; $21,419
from the Random Return of Title IV Aid sample; and $103 from the Leave of Absence sample. See Table 5 for
details. The dollars do not add up exactly to the sum due to rounding.
Final Report
ED-OIG/A05I0014                                                                   Page 23 of 155

Table 5. Effect of Improper Return of Title IV Aid Calculations
                                                             Title IV, HEA Program Funds
 Random Return of Title IV Aid Sample                            Retained by University
 Results                                      Students          Excess            Less
 Underpaid lender or Department                  21             $20,544
 Overpaid lender or Department                    2                           $ 327
 Overdisbursed post-withdrawal                    4             $ 875
 Underdisbursed post-withdrawal                   1                           $ 810
 Totals                                          28             $21,419       $ 1,137

 Leave of Absence Sample Results
 Underpaid lender or Department                   1             $    52
 Overpaid lender or Department                    1                           $   424
 Overdisbursed post-withdrawal                    1             $    51
 Underdisbursed post-withdrawal                   1                           $ 644
 Totals                                           4             $   103       $ 1,068

The Federal government is harmed when an institution improperly retains Title IV, HEA
program funds because it must pay interest on a subsidized student loan during in-school status,
the grace period, and during authorized deferment periods and because it must pay special
allowance to lenders on the average unpaid principal balances of all eligible FFEL loans.
Borrowers are harmed when an institution improperly retains Title IV, HEA program funds
because they are responsible for the interest that accrues on unsubsidized loan amounts that
should have been returned to the lenders.

Based on statistical sampling techniques, we are 90 percent confident that the University
improperly retained at least $1.1 million of the $81.4 million in Title IV, HEA program funds
disbursed to distance education students who withdrew or had a zero GPA, or both, during award
year 2006-2007. The $1.1 million in Title IV, HEA program funds represents funds improperly
retained because the University improperly calculated the amount of funds it was required to
return to the Title IV, HEA programs.

Three factors contributed to the University improperly retaining Title IV, HEA program funds.
First, the University’s interpretation of how to determine the student’s last date of attendance
was not aligned with applicable regulations. The University considered clicks into a student’s
learning block to be academically related activity that could support student attendance. The
University considered the last date of attendance to be the last day in the week in which the
student attended, even if the student did not attend on that last day in the week. Second, the
University’s interpretation of how to determine the student’s payment period end date was not
aligned with Department guidance. If a student did not successfully complete courses in the
payment period prior to withdrawal, the University recalculated the payment period end date by
extending the payment period by the number of days required to complete those courses, starting
consecutively after the end date of the class from which the student withdrew. This methodology
is contrary to Department guidance that requires a non-term institution to use the student’s
progress as of the withdrawal date to determine the total number of calendar days for that
student’s payment period. Third, the University did not always correctly calculate tuition
Final Report
ED-OIG/A05I0014                                                                                  Page 24 of 155

charges that would have been assessed to students had they completed the semester. These three
factors caused the University to improperly calculate the amount of Title IV, HEA program
funds that it was allowed to retain.

Recommendations

We recommend that the COO for FSA require the University to

2.1     Return to the Department and lenders, as appropriate, $29,036 resulting from the
        improper return of Title IV aid calculations and post-withdrawal disbursements that
        exceeded what the students were entitled to receive for the 38 students in our samples.18

2.2     Review its files, excluding the files for the 85 students in our samples,19 identify the
        amount of Title IV, HEA program funds that were improperly retained for Title IV, HEA
        program recipients in the distance education programs who withdrew from the University
        during award year 2006-2007 and return that amount, plus any interest and special
        allowance, to the Department or lenders.

2.3     Develop and implement written policies and procedures that provide reasonable
        assurance that it will

        (a) require a student’s withdrawal date to be based on the last date of academic activity
            as supported by the distance education students’ coursework;
        (b) correctly determine the end of payment period for refund calculations per Federal
            regulations and related Department guidance; and
        (c) accurately determine tuition charges when performing return of Title IV aid
            calculations.

We also recommend that the COO for FSA

2.4     Consider taking appropriate action under 34 C.F.R. Part 668, Subpart G because the
        University did not correctly perform return of Title IV, HEA program funds calculations.

University Comments and OIG Response

University’s General Comments: The University did not agree with the finding or the
recommendations. The University stated that it correctly calculated return of Title IV aid, with
one exception totaling $101.25. The University did not believe that this small error rate
warranted the imposition of a 100 percent file review. The University also stated that the finding
was premised on a review of files for one award year (2006-2007) and did not provide any basis
for expanding the review to cover a 4-year period.

18
   The 38 students consisted of 11 students from the Judgmental Return of Title IV Aid sample plus 25 students
from the Random Return of Title IV Aid sample plus 2 students from the Leave of Absence sample.
19
   The 85 students consisted of 24 students from the Judgmental Return of Title IV Aid sample plus 50 students
from the Random Refund sample plus 12 students from the Leave of Absence sample minus the 1 duplicated
student.
Final Report
ED-OIG/A05I0014                                                                              Page 25 of 155

The University stated that its methodology of using the last date of attendance instead of the
midpoint of the payment period was stricter than required by law and regulation. The University
also stated that its methodology resulted in the University’s retaining fewer funds and returning
more to students and lenders than the regulations required.

The University noted that, in five instances, the audit team used the midpoint of the payment
period to recalculate the withdrawal date.  The University stated that the audit team’s use of the
midpoint for these students and not others was arbitrary and contrary to governing regulations.
The University declared that the finding would have to use the midpoint or a later documented
date of attendance for all students in the samples in order to perform a genuine comparison
between the University’s return of Title IV aid calculations and those permitted under the
regulations. 

The University further noted that the Department has proposed regulations that would require
institutions that are not required to take attendance to use attendance records to calculate the
withdrawal dates instead of using the midpoint of the payment period if the institutions
voluntarily took attendance. However, those rules have not been published in final form and
would not take effect until July 1, 2011.20 The University stated that the finding was
retroactively applying proposed regulations, and the Department does not have the authority to
impose recalculations based on attendance records that the law does not require the University to
use for return of Title IV aid purposes. 

The University also considered the error rates and dollar estimates to be distorted because the
samples used were not randomly selected from the entire student population. (The University
had similar comments regarding the samples used for Finding No. 3 and Finding No. 5.) The
University stated that the audit team drew judgmental samples from targeted universes. The
University also considered the finding’s effect to be distorted because it reports discrepancies in
last date of attendance, payment period end date, and tuition charges that, even if correct, would
not have changed the University’s return of Title IV aid calculations or would have resulted in
the University returning less money to the Title IV, HEA programs. 

OIG Response: We made minor revisions to the finding. We also removed our draft report’s
recommendation to request a letter of credit from the University, and revised
Recommendation 2.2 to limit the University’s review of files to award year 2006-2007. 

However, we do not agree with the University’s assertion that we should have used the midpoint
of the payment period to determine whether the University harmed the Title IV, HEA programs
by retaining more Title IV, HEA program funds than it should have. Because the University was
not required to take attendance, the regulations permit the University to use either (a) the
midpoint of the payment period as the withdrawal date if the student did not provide official
notification of the withdrawal or (b) the last date of attendance at an academically related activity
as the withdrawal date. The institution can choose either option for the purpose of return of
Title IV aid calculations. The regulations applicable to the option that the University selects
would be used to determine whether the student received the Title IV, HEA program funds that

20
     The regulations became final on October 29, 2010, and will be effective July 1, 2011.
Final Report
ED-OIG/A05I0014                                                                      Page 26 of 155

the student was entitled to receive. The applicable regulations also would be used to determine
whether the University returned the appropriate amount of Title IV, HEA program funds to the
Department or to the lenders. The University cannot use the last date of attendance as the
withdrawal date for its return of Title IV aid calculations but then use the midpoint of the
payment period as the withdrawal date for determining whether it properly retained Title IV,
HEA program funds.  The University’s written policy, which was published in its catalog and
made available to its students, required the use of the last date of attendance to perform return of
Title IV aid calculations.  We used the University’s established policy to calculate return of Title
IV aid. Using that policy, we determined that the University improperly retained Title IV, HEA
program funds, and the error rate identified in the finding was significant enough to warrant a
100 percent file review for award year 2006-2007. 

We agree that we used the midpoint of the payment period to recalculate the return of Title IV
aid for six (not five) students in one of our samples.  However, we did not arbitrarily use the
midpoint when performing these recalculations. In these six instances, we could review
academic activity in the on-line learning management system for the students but could not
determine the dates on which academically related activity occurred because of problems related
to how the University archived its data. Because we could not determine the last date of
academically related activity but could confirm that the students attended those courses, we had
no way to calculate the return of Title IV aid for those six students other than to use the midpoint
of the payment period.  For the rest of the withdrawals in the samples, we could determine the
last date of attendance at an academically related activity from the information documented in
the on-line learning management system. Therefore, we used the documented last date of
attendance when recalculating the return of Title IV aid for the rest of the withdrawals in our
samples.

We did not retroactively apply regulations that were not in effect during the audit period.  Our
finding applies only regulations that were in effect during the audit period, and we used the
University’s own published policies for applying those regulations.

We do not agree with the University’s claim that our error rates and dollar estimates are distorted
for this finding or for Finding Nos. 3 and 5. Our audit objectives were applicable only to
distance education students who received Title IV, HEA program funds. Any exceptions
identified are applicable only to the populations from which the samples were drawn. For
Finding No. 2, the populations that we used for testing return of Title IV aid calculations
(students who were on leave of absence; students who withdrew, or had a zero GPA, or both)
represented students for whom a return of Title IV aid calculation might have been required. 
When we reported our error rates and dollar estimates, we included only the students in the
universes sampled, not the University’s entire student population.  We added language in the
finding to clarify that the dollar estimates were only for the population of distance education
students who received Title IV, HEA program funds and withdrew or had a zero GPA, or both,
during award year 2006-2007. 

The University is incorrect when it implies that samples are judgmental just because the
universes from which the samples are drawn do not include the University’s entire student
population. Samples are random as long as each unit in the universe used has an equal
Final Report
ED-OIG/A05I0014                                                                       Page 27 of 155

opportunity of being selected. For Finding Nos. 2, 3 and 5, we used only one judgmental
sample, which is clearly described as such.

We also do not agree that we should have included only errors in last date of attendance,
payment period end date, and tuition charges if those errors negatively impacted the return of
Title IV aid calculation.  The University did not always correctly determine the last date of
attendance, payment period end date, and tuition charges. The fact that those errors did not
always require the return of additional Title IV, HEA program funds does not discount the fact
that the errors are indicative of a systemic internal control weakness that could have resulted in
incorrect amounts being returned. 

University Comments on Determination of Last Date of Attendance: The University stated that it
correctly calculated the withdrawal date for each of the students cited in the finding, with the
exception of one. For distance education students, the University’s attendance policy requires
students to have class attendance at least 2 days within a week to be counted as present for that
week. The student’s withdrawal date is the last day of the week in which the student attended a
course for at least 2 days during the week. The University determines the students’ dates of
attendance by monitoring the students’ on-line clicks within its on-line learning management
system and counts only academic clicks when determining the students’ attendance. The
University defines an academic click to be when the student enters a learning block for a course.
The University considers entering the learning block to be an academically related activity and
consistent with the regulatory definition of attendance in 34 C.F.R. 668.22(c)(3). The University
did not agree that it was required to use the last date of attendance within that week. If a student
attended any 2 days in the week, then the student had fulfilled his or her attendance obligation
for the remainder of the week and would have a last date of attendance that was the last day of
that week.

OIG Response: During the audit, we reviewed on-line learning management system data for
discussion postings related to coursework, completed quizzes, and homework submissions as
support that the student engaged in academically related activity. We did not consider the
University’s log of attendance clicks as support that the student engaged in academically related
activity.  We reviewed the additional documentation that the University provided to support the
last dates of attendance it used as the withdrawal date for its return of Title IV aid calculations. 
We did not consider the additional documentation to be adequate to support the last dates of
attendance that the University used. 

We understand that the University counted clicks as attendance only if the student entered one of
his or her learning blocks.  However, we did not consider clicking into the learning block to be
sufficient evidence that the student engaged in academically related activity. According to
34 C.F.R. § 668.22(c)(3)(ii), examples of academically related activity include “. . . an exam, a
tutorial, computer-assisted instruction, academic counseling, academic advisement, turning in a
class assignment or attending a study group that is assigned by the institution.” Simply clicking
into a learning block would not be sufficient support that a student engaged in academically
related activity such as what is described above. Without the opportunity to review actual
documentation (such as a homework submission) to support that the student engaged in
academically related activity, we do not have any assurances that the student actually
Final Report
ED-OIG/A05I0014                                                                     Page 28 of 155

participated in activity that would constitute attendance.  For example, for one student in our
samples, the record of clicks indicated that the student’s only activity in the course was in the
announcements section of the course.  Yet, the University considered the student to have
attended that course.  For another student, the record of clicks indicated that the student’s only
activity in the course was in the announcements, grades, and tools area of the course. These two
examples indicate that the clicks that the University used to determine attendance were not
always related to activity that could be construed as academically related activity.

We do not agree with the University’s position that it could extend the last date of attendance to
the last day in the week just because the students had attendance at least 2 days during that week. 
Although the regulations and statute do not define “date,” their use clearly indicates that it means
the individual day on which the event occurred. The University provided no basis in the
regulations or in common practice in the industry that supports its contention that “date” means
the last day in the week in which the event occurred. The plain language in the governing
regulations is clear that the last date of attendance is the last date on which the student engaged
in academically related activity (we added language to the audit report to clarify what we
accepted as support for academically related activity). During the audit, we reviewed the
University’s records to ensure that each student had 2 days of academically related activity in a
week to meet the University’s attendance requirements for that week. However, we did not
consider the student to have attended through the end of the week unless the student engaged in
academically related activity on the last day of that week.

University Comments on the Calculation of Payment Period End Date: The University did not
agree that it failed to revise the payment period end date for students who did not complete their
credits according to the student’s schedule. For the students cited in the finding for whom the
payment period calculation affected the return of Title IV aid, the University provided
documentation that would support that the payment periods were properly determined.  The
University also explained that, in two instances, the students were in a term program, and the
payment period would not be adjusted in such instances.  The University explained that it did not
adjust the payment periods in situations when the students did not fail to complete any of the
courses in the payment period prior to the course in which they withdrew.  The University stated
that this methodology was supported by guidance in the FSA Handbook (2006-2007 FSA
Handbook, pp. 5-68 to 5-69). If a student did not successfully complete a course in the payment
period, the University recalculated the payment period end date, taking into consideration
courses the student had failed or not successfully completed during the payment period.
Generally, the University extended the payment period by the number of days required to
complete the course starting consecutively after the end date of the class from which the student
withdrew. 

The University also stated that the draft audit report did not explain or justify the different
methodology it used to calculate the length of the payment periods. The University noted that
Dear Colleague Letter GEN-04-03, Return of Title IV Aid (Revised November 2004) gave an
example of how the recalculation could be performed but stated that the Dear Colleague Letter
gave the institution the discretion to adopt a reasonable methodology. The University considered
its methodology to be reasonable because it accounted for the student’s progress by adding
Final Report
ED-OIG/A05I0014                                                                     Page 29 of 155

additional days to the payment period sufficient to complete the courses that the students failed
to complete during the payment period.

OIG Response: We agree that it was reasonable to assume that a student who successfully
completed courses prior to withdrawal and did not have any breaks between courses prior to
withdrawal would have completed the payment period on the originally scheduled end date. In
those instances, we agree that the payment period would not need to be adjusted.  In addition, we
agree that term students do not require payment periods to be adjusted. Therefore, we made
revisions to the total number of instances in which the University did not correctly calculate the
end of the payment period.  We also provided additional language to clarify how we calculated
the payment period end date.  Using the example in Dear Colleague Letter GEN-04-03, we
determined the number of credit hours a student had completed and the number of days the
student had attendance for the payment period prior to withdrawing.  We used that information
to determine, on average, the number of days it took the student to complete each credit hour.
We used that average to project the number of additional days it would take a student to
complete the end of the payment period.

We do not agree with the University’s methodology for extending the payment period end date
for students who did not successfully complete courses prior to withdrawal. The University
should determine the number of additional courses the student needed to take to have completed
the credits in the payment period and extend the payment period by the number of days
necessary to complete those courses. Dear Colleague Letter GEN-04-03 states that, if a program
is self-paced, the University has to use the student’s progress as of the withdrawal date to
determine the total number of calendar days for that student’s payment period. Therefore, a
student who failed courses or had gaps between courses prior to withdrawal should have more
days added to the payment period than a student who attended the same number of courses prior
to withdrawal with passing grades and no gaps between courses. Dear Colleague Letter GEN-
04-03 further states that, if an institution has non-term programs, it must have reasonable
procedures for determining the completion date of the payment period if the non-term program is
such that the student does not earn credits or complete lessons during his or her progress through
the program. That is not the case with the University. The University’s students earn credits as
they progress through the payment period. Therefore, the University is required to use the
number of credits earned and the number of days it took to earn those credits as of the
withdrawal date to project the additional time it would take the students to complete the payment
period. 

University Comments on Projection of Tuition Charges: The University did not agree with the
draft finding’s position concerning tuition charges used in the return of Title IV aid calculations
stating that students are charged tuition one course at a time. The University stated that the
return of Title IV aid regulations require that the University base the return of Title IV aid on
tuition charges for the entire payment period.  The University, therefore, projected the additional
courses the student would have completed if the student had completed the entire semester.  The
University provided documentation to explain how the tuition charges were projected for the
students in the finding for whom the tuition charges would have negatively affected the return of
Title IV aid calculation.
Final Report
ED-OIG/A05I0014                                                                    Page 30 of 155

The University explained that its methodology for determining the tuition charges for the
payment period was to include (1) the actual charges for the course for which the University had
charged the student and (2) the charges for courses at the student’s certified grade level for the
remaining courses for which the University had not charged the student. For example, for a
student at grade level one (100 level courses) who withdrew after the first course in a 4-course
payment period, the University should determine the tuition charges for the payment period by
using the actual charges for the first course and then add charges for three additional courses at
the 100 level. 

OIG Response: We recalculated tuition charges for the payment periods in which the students
withdrew using courses in the student’s schedule to determine the charges the students would
have incurred had they completed the remaining courses in the payment period.  We also
included the charges already assessed to the student to determine the total institutional charges
that should have been included in the return of Title IV aid calculation. We interviewed officials
from ACS who informed us that the student schedules were used to project tuition charges for
the payment period that had not been incurred as of the student’s withdrawal.  We used that
information to recalculate the tuition charges. 

During our fieldwork, the University did not inform us that its policy was to determine tuition
charges not incurred for the payment period based on the student’s grade level. Regardless, the
more appropriate methodology for projecting tuition charges was the student’s schedule of
anticipated courses, not a student’s grade level. Therefore, we did not make any revisions to our
calculation of the tuition charges that should have been used for the return of Title IV aid
calculations for the students in our samples.

FINDING NO. 3 – Untimely Return of Title IV, HEA Program Funds

The University did not return Title IV, HEA program funds timely. For distance education
students for whom returns of Title IV, HEA program funds to the Department or lenders were
due, the University did not return the Title IV, HEA program funds within 45 days after
determining the distance education student had withdrawn. Of the 47 returns that the University
determined were owed for students in our three samples, 21 (45 percent) were paid late (see
Table 6).

Table 6. Untimely Return of Title IV, HEA Program Funds
                       Students in Students With  Paid Late          Range
        Sample           Sample    Refunds Paid (Over 45 days) (Number of Days Late)
Judgmental Return of
Title IV Aid                24            13               4              3 through 92
Random Return of
Title IV Aid                50            26              13              2 through 41
Leave of Absence            12             8               4             21 through 273

A finding related to the untimely return of Title IV, HEA program funds was also identified in
the University’s Title IV compliance audit for the fiscal year ended December 31, 2008.
According to the compliance audit, 2 students from a sample of 25 had Title IV, HEA program
Final Report
ED-OIG/A05I0014                                                                        Page 31 of 155

funds returned from 4 to 20 days late. The compliance audit reported that the University did not
follow its control procedures for processing return of Title IV, HEA program funds.

According to 34 C.F.R. § 668.22(j)(1)(2007), “An institution must return the amount of title IV
funds for which it is responsible . . . as soon as possible but no later than 45 days after the date of
the institution’s determination that the student withdrew . . . .”

The Federal government is harmed by late returns of Title IV, HEA program funds because it
must pay interest on outstanding subsidized student loans during in-school status, the grace
period, and during authorized deferment periods and because it must pay special allowance to
lenders on the average unpaid principal balances of all eligible FFEL Program loans. Borrowers
are harmed by late returns because they are responsible for the interest that accrues on
unsubsidized loans while waiting for the return of Title IV aid.

The University discussed the issue of untimely return of Title IV, HEA program funds with
ACS, which processes the University’s return of Title IV aid calculations, and found that ACS
used a database (File Tracking Tool) to track students when they withdrew from school. The
database also contained student demographic information and return of Title IV aid information.
The University stated that ACS could run reports from this database by date of determination, so
that it could ensure that withdrawals were processed in the correct order. ACS also could run
reports to determine work in progress, work completed, and the work completed by each
processor. Per the University, ACS, effective July 2008, enhanced its File Tracking Tool to
provide better measurement of the timing of payments, added staff, and assigned a senior
processor to ensure that calculations and payments are completed in a timely manner.

Recommendations

We recommend that the COO for FSA require the University to

3.1    Develop and implement written policies and procedures that provide reasonable
       assurance that unearned Title IV, HEA program funds are returned timely.

We also recommend that the COO for FSA

3.2    Consider taking appropriate action under 34 C.F.R. Part 668, Subpart G because the
       University failed to return Title IV, HEA program funds in a timely manner.

University Comments and OIG Response

University Comments: The University did not agree with the finding and the recommendations.
The University agreed that returns of Title IV, HEA program funds were late during the audit
period, stating that the issue already was disclosed in its 2007 compliance audit. The University
stated that, in response to the 2007 compliance audit, it submitted a letter of credit to the
Department and implemented corrective actions, including written policies and procedures to
address this issue. The University stated that success of those corrective actions was
demonstrated by the absence of material untimely return findings in the University’s Title IV
Final Report
ED-OIG/A05I0014                                                                         Page 32 of 155

compliance audits for fiscal years 2008 and 2009. Because the University’s two most recently
completed compliance audits did not include late return findings in excess of regulatory
maximums, the University stated that it should not have to submit a letter of credit.

The University stated that the regulations require an institution to return Title IV, HEA program
funds related to a return of Title IV aid calculation “. . . no later than 45 days after the date of the
institution’s determination that the student withdrew. . . .” (34 C.F.R. § 668.22(j)(1)) According
to 34 C.F.R. § 668.22(l)(3), if the student does not provide notification of his or her withdrawal,
the date of the institution’s determination that the student withdrew is defined as “the date the
institution became aware that the student ceased attendance.” The University also stated that 34
C.F.R. § 668.22(j)(2) does not require an institution to determine the withdrawal date of a
student until 30 days after the end of the earlier of a student’s payment period, the student’s
academic year, or the student’s program. The University stated that, if an institution is not
required to take attendance, the regulations permit the institutions to wait until 2.5 months after
the student’s payment period ends to make Title IV returns. This takes into account the 30-day
time frame to determine the student withdrew and the 45 days beyond that to return the Title IV,
HEA program funds.

The University stated that it voluntarily monitored attendance and made determinations of
student withdrawals throughout the payment period. Therefore, it returned the cited Title IV,
HEA program funds well in advance of the deadline that would have applied had it chosen not to
take attendance and had it not made withdrawal date determinations until after the end of the
payment period.

Finally, the University claimed that the finding’s effect was distorted because the audit team did
not test files randomly selected from the University’s entire student population. Instead, the
audit team drew three samples from two groups limited to Title IV, HEA program recipients who
were on leave of absence, or who withdrew, had a zero grade point average, or both. The
University stated that the samples were targeted, judgmental, and not representative of the
University’s entire student population. For that reason, the University stated that the error rates
were distorted. The University also stated that the finding overstated the extent of the alleged
untimely return of Title IV aid. The finding contends that the range of lateness extended up to
273 days. Yet only 4 of the cited returns were greater than 40 days late, and at least one-third
were less than 7 days late.

OIG Response: We do not agree with the University’s assertion that it is returning Title IV, HEA
program funds timely. Therefore, we did not make any changes to the finding. The regulations
require the return the Title IV, HEA program funds within 45 days of the actual date an
institution determined the student withdrew, not 45 days after the maximum number of days
within which the institution could have determined the student withdrew. In addition, according
to 34 C.F.R. § 668.173, the University can meet the requirements for sufficient cash reserves if
untimely return of Title IV, HEA program funds is below the threshold referenced. However,
that does not mean that the University is in compliance with regulations related to the timely
return of Title IV, HEA program funds.
Final Report
ED-OIG/A05I0014                                                                    Page 33 of 155

According to the compliance audits for fiscal years 2008 and 2009, the University did not exceed
the refund reserves standard’s compliance threshold under 34 C.F.R. § 668.173(c). Therefore
the University would not be required to submit a letter of credit. Accordingly, we removed draft
Recommendation 3.3 (recommending that the University submit a letter of credit). However, the
compliance audit for fiscal year 2008 reported a finding related to the untimely return of
Title IV, HEA program funds (at the time of our audit, fiscal year 2008 was one of the two most
recently completed fiscal years). From a sample of 25 students, 2 had Title IV, HEA program
funds returned between 4 and 20 days late. Contrary to the University’s response, the audit
reported that the University’s control procedures for processing return of Title IV, HEA program
funds were not followed.

During our audit, the University provided us with a description of its new policies and
procedures related to the timely return of Title IV, HEA program funds during our audit.
However, the University did not provide us a copy of its new official written policies and
procedures related to the return of Title IV aid. The compliance audits indicated that the
University still had findings related to the untimely return of Title IV, HEA program funds in
fiscal year 2008 but not for fiscal year 2009. Without an opportunity to review written policies
and procedures related to the return of Title IV aid, we cannot make a determination as to
whether those policies and procedures would provide reasonable assurance that unearned
Title IV, HEA program funds are returned timely.

We disagree that the results of the finding are distorted. (For our general response to the
University’s comments on how we selected our samples, see the OIG Response to the
University’s General Comments for Finding No. 2) We selected our samples from the
population of distance education students who received Title IV, HEA program funds and who
were part of a population that would have the potential of having a return of Title IV aid
calculation performed. The universes that we used did not distort the results of our testing
because the students included in those universes were students for whom the testing was
applicable for our audit period. We also are clear that there is a range of dates for the untimely
return of Title IV aid. Providing a range of dates does not distort the results. It shows that the
return of Title IV, HEA program funds were made after the prescribed timeframe but not always
the same number of days late. Even if the University had returned funds only 1 or 2 days after
the 45-day timeframe, it still would not be in compliance with the regulations.

FINDING NO. 4 – Lack of Proper Authorization to Retain Student Credit Balances

The University’s credit balance authorization form did not comply with regulations. The
authorization form used during our audit period was not clear, and was not voluntary. It was
included on the University’s financial aid application, and all students requesting financial aid
were required to sign the application (the financial aid application provides a section for
authorizations). However, the form did not clearly state that the student or parent had given the
University the authorization to hold credit balances for the student or parent. The agreement
stated

       I (WE) authorize the crediting of federal financial aid funds directly to the
       student’s account to cover educational costs for the payment period covered by
Final Report
ED-OIG/A05I0014                                                                            Page 34 of 155

       the awards. If there are funds remaining on the account after educational costs
       have been withheld, the proceeds may be applied as follows (indicate by marking
       ‘yes’ or ‘no’):

       (Yes, No) I (WE) authorize Title IV student financial aid funds to be applied to
       other current charges for educationally related activities (i.e., books and
       equipment)

       (Yes, No) I (WE) authorize Title IV student financial aid funds to be applied to
       minor prior-year charges (i.e., any charges from previous academic year)

       I (WE) understand that this form is valid while enrolled at Ashford University and
       that I (WE) may withdraw my approval for any one or all of the above
       authorizations at any time. This may be accomplished by contacting the financial
       aid office.

The form did not provide a student or parent the option not to authorize the University to retain a
credit balance (the only yes or no options pertain to what the balance may be applied to other
than tuition and fees).

The form also conflicted with other requirements that state (1) schools may credit a student’s
account for certain charges without the student’s authorization, and (2) program funds for an
award year could not be used for more than $100 in prior award year charges.

According to 34 C.F.R. § 668.164(d)

                (1) Without obtaining the student's or parent's authorization under
       § 668.165, an institution may use title IV, HEA program funds to credit a student's
       account at the institution to satisfy current charges for—
                (i) Tuition and fees;
                (ii) Board, if the student contracts with the institution for board; and
                (iii) Room, if the student contracts with the institution for room.
                (2) After obtaining the appropriate authorization from a student or parent under §
       668.165, the institution may use title IV, HEA program funds to credit a student's account
       at the institution to satisfy—
                (i) Current charges that are in addition to the charges described in paragraph
       (d)(1) of this section that were incurred by the student at the institution for educationally
       related activities; and
                (ii) Minor prior award year charges if these charges are less than $100 or if the
       payment of these charges does not, and will not, prevent the student from paying his or
       her current educational costs.

                                         . . . . . . .

               (4) For purposes of this paragraph, current charges refers to charges assessed the
       student by the institution for—
               (i) The current award year; or
Final Report
ED-OIG/A05I0014                                                                             Page 35 of 155

              (ii) The loan period for which an institution certified or originated a loan under
       the FFEL or Direct Loan programs.

According to 34 C.F.R. § 668.164(e)

       Whenever an institution disburses title IV, HEA program funds by crediting a student’s
       account and the total amount of all title IV, HEA program funds credited exceeds the
       amount of tuition and fees, room and board, and other authorized charges the institution
       assessed the student, the institution must pay the resulting credit balance directly to the
       student or parent as soon as possible but—
                (1) No later than 14 days after the balance occurred if the credit balance occurred
       after the first day of class of a payment period; or
                (2) No later than 14 days after the first day of class of a payment period if the
       credit balance occurred on or before the first day of class of that payment period.

According to 34 C.F.R. § 668.165(b)

               (1) If an institution obtains written authorization from a student or parent, as
       applicable, the institution may— . . .

                                             . . . . . . .

               (iii) . . . hold on behalf of the student or parent any title IV, HEA program funds
       that would otherwise be paid directly to the student or parent under § 668.164(e).
               (2) In obtaining the student’s or parent’s authorization to perform an activity
       described in paragraph (b)(1) of this section, an institution—
               (i) May not require or coerce the student or parent to provide that authorization;
               (ii) Must allow the student or parent to cancel or modify that authorization at any
       time; and
               (iii) Must clearly explain how it will carry out that activity.
               (3) A student or parent may authorize an institution to carry out the activities
       described in paragraph (b)(1) of this section for the period during which the student is
       enrolled at the institution.

                                         . . . . . . .

                (5) If an institution holds excess student funds under paragraph (b)(1)(iii) of this
       section, the institution must—
                (i) Identify the amount of funds the institution holds for each student or parent in
       a subsidiary ledger account . . . .

The Vice President of Finance informed us that, by signing the authorization form, the student or
parent had authorized the University to retain funds for tuition and fees. The Vice President of
Finance also said that the authorization form allowed students to withdraw their authorization
(1) to retain funds, (2) to apply other current charges, or (3) apply minor prior year charges at
any time. The University also contended that a credit balance did not exist if the balance on the
student’s account could cover future tuition charges in the payment period. Therefore, the
University did not truly hold credit balances because the credit balances would pay tuition and
fees for future classes during the payment period.
Final Report
ED-OIG/A05I0014                                                                      Page 36 of 155

However, instead of charging all tuition for all the student’s classes for the payment period, the
University charged the distance education student for each class individually after the student
started each class.21 When the Title IV, HEA program funds were disbursed for a payment
period, all charges for the payment period had not yet been assessed. Therefore, a credit balance
existed until the tuition charges for the next class or two were applied.

Our review of student account records confirmed that the University was, in fact, holding credit
balances. The University disbursed Title IV, HEA program funds for charges that had not yet
been assessed for the payment period. This caused the students to have a balance on their
accounts until the additional charges had been posted to their accounts. According to
34 C.F.R. § 668.164 (d)(1) and (4), the University may use Title IV, HEA program funds to
credit a student's account at the institution to satisfy current charges. “Current charges” are
defined as charges assessed for the current award year or for the loan period for which the
institution certified or originated a loan under the FFEL or Direct Loan programs. Federal
regulations do not permit institutions to credit a student’s account with Title IV, HEA program
funds for charges that have not been assessed. In addition, the University did not comply with
Federal regulations that require institutions to maintain a subsidiary ledger account to identify
credit balances it is authorized to hold for each student or parent for longer than 14 days
(34 C.F.R. § 668.165(b)(5)). The University did not maintain this subsidiary ledger account
because it did not consider a positive balance in the student’s account as a credit balance if future
tuition charges were anticipated that would absorb the balance.

When the University retained Title IV, HEA program funds that it was not authorized to hold,
distance education students did not have timely access to credit balances that they might have
needed to buy books, supplies, and/or use for other expenses. Further, the University could be
earning interest on the funds it improperly held.

Recommendation

We recommend that the COO for FSA require the University to

4.1        Cease drawing, disbursing, and holding credit balances of Title IV, HEA program funds
           for which there are no currently assessed institutional charges. The University may make
           multiple disbursements during a payment period, but it must draw and disburse Title IV,
           HEA program funds only when they are needed to pay allowable charges.

University Comments and OIG Response

University Comments: The University did not agree with the finding or the recommendations.
The University disagreed that its prior credit balance authorization did not comply with the
regulations. The University claimed that the prior authorization form was clear that a student
could withdraw the authorization and explained how the student could withdraw the
authorization. Nonetheless, the University revised the form, submitted it to the Department for
review, and now uses the revised form. The University provided a copy of the revised credit

21
     Classes are sequential, not concurrent.
Final Report
ED-OIG/A05I0014                                                                     Page 37 of 155

balance authorization form and copies of emails between the University and FSA officials.
According to the emails, on November 13, 2009, an FSA official told the University that the
revised authorization form appeared to be in compliance with the regulations and instructed the
University to begin using the revised authorization form immediately. The emails also showed
that the University planned to take immediate action to begin using the new form. The
University stated that the revised form addresses each of the concerns in the finding; therefore,
no further action is required. 

The University also did not agree with the statement in the recommendation that the
“. . . University may make multiple disbursements during the payment period, but it must draw
and disburse Title IV, HEA program funds only when they are needed to pay allowable charges.” 
The University stated that the regulations make it clear that the decision to make multiple
disbursements during the payment period is not a requirement but a matter of institutional
choice.  According to the University, the finding maintains that 34 C.F.R. § 668.164(d)(1)
and (4) do not permit institutions to disburse funds in excess of charges assessed as of the date of
disbursement. The University further stated that the finding is incorrect and the regulations
anticipated that Title IV, HEA disbursements might exceed charges assessed by the institution
and stipulate requirements for handling the credit balances that would occur.

OIG Response: The University did not provide evidence to support that the authorization form it
used during the audit period gave it authorization to hold student credit balances.  However, we
agree that the revised credit balance authorization form complies with the regulations.
Therefore, we removed draft Recommendations 4.1 and 4.2 (which were related to the need for a
revised credit balance authorization form) from the audit report (draft Recommendation 4.3 is
Recommendation 4.1 in this final audit report). 

The University did not provide any documentation showing that it has addressed the issue of
assuring that Title IV, HEA program disbursements are made only for current institutional
charges. Therefore, we still have concerns that the University is disbursing Title IV, HEA
program funds for charges that have not yet been assessed for the payment period. The
regulations require the amount disbursed to be for charges assessed, not for anticipated charges.
For distance education students, the University charged tuition for each class individually after
the student began the course. Because the University did not charge all tuition at the beginning
of the payment period, the University may make multiple disbursements during the payment
period. In our recommendation, we do not state that the University must use multiple
disbursements during the payment period. Another option would be for the University to delay
disbursing Title IV, HEA program funds until all charges for the payment period have been
assessed. In any case, the University may only make disbursements of Title IV, HEA program
funds to cover currently assessed charges.
 
FINDING NO. 5 – Improper Disbursements of Title IV, HEA Program Funds

The University did not always disburse Title IV, HEA program funds in accordance with Federal
regulations or University policy. We sampled from two universes—a disbursement universe and
a leave of absence universe—to test for disbursements that the University might have made prior
to the students being eligible to receive them. For the disbursement universe, we analyzed
  Final Report
  ED-OIG/A05I0014                                                                                Page 38 of 155

  distance education students’ disbursements and transcripts. The analysis disclosed
  3,521 distance education students who we considered at risk of receiving improper
  disbursements. In a non-term program, a payment period is the period of time in which the
  student completes half the number of credit hours in the program and half the number of weeks
  in the program. We considered the student to be at risk of an improper disbursement if the
  disbursement were made prior to the student completing the prior payment period’s hours. We
  determined which students were at risk of improper disbursements by comparing the length of
  time it took the student to complete the prior disbursement period’s credit hours with the timing
  of the disbursements (based on credit hours earned on and after July 1, 2006)

  Review for Improper Disbursements
  We randomly selected 50 distance education students from our targeted universe of 3,521. These
  50 students received $342,949 from the total of $24,458,497 in Title IV, HEA disbursements that
  we identified as being at risk of being improper disbursements. Of the 50 students, 19 (38
  percent) received a total of $89,493 in Title IV, HEA program funds for which the students were
  not eligible at the time of their 2006-2007 disbursements (see Table 7).22

  Table 7. Improper Disbursements of Title IV, HEA Program Funds
                                                          Students             Title IV, HEA Disbursements
Universe                                                    3,521                     $24,458,497 (a)
Sample                                                         50                     $ 342,949 (b)
Students With Improper Disbursements (Non-
Duplicated) (c)                                              19                        $     89,493
Disposition of Improper Disbursements
    Became eligible in 13 -50 days (d)                         11                     $      24,889
    Refunded in 4-93 days                                      31                     $      59,354
    Never became eligible and not returned                      2                     $       5,250
Totals                                                         44                     $     89,493(d)
(a) $10,272,321 in Subsidized Stafford Loan; $12,316,696 in Unsubsidized Stafford Loan; $16,557 in PLUS;
    $1,847,923in Pell; $1,000 in FSEOG; and $4,000 in National SMART grants.
(b) $186,794 in Subsidized Stafford Loans; $138,363 in Unsubsidized Stafford Loans; and $17,792 in Pell
(c) We identified 19 unduplicated students with improper disbursements. Three students included in “Became
    eligible 13-50 days” were also included, for other disbursements, in “Refunded 4-93 days.” The three students
    had one or more disbursements for which the students eventually became eligible and one or more disbursements
    that were eventually refunded.
(d) $35,701 in Subsidized Stafford Loans; $52,292 in Unsubsidized Stafford Loans; and $1,500 in Pell.

  Of the 44 improper disbursements:

              Eleven (25 percent) were made for students who did not become eligible for the
               disbursements until 13 to 50 days after the disbursements were made.

              Thirty-one (70 percent) were made for students who never became eligible for the
               disbursements, and the University did not return the funds until 4 through 93 days

  22
    The $89,493 consisted of $35,701 in Subsidized Stafford Loans; $52,292 in Unsubsidized Stafford Loans; and
  $1,500 in Pell.
Final Report
ED-OIG/A05I0014                                                                                Page 39 of 155

             after the improper disbursements were made. These students received 2006-2007
             Title IV, HEA program disbursements for which they never became eligible.

            Two (5 percent) were made for a student who never became eligible, and the
             disbursements were never returned. When we brought this matter to the University’s
             attention, the University determined that it had submitted a request to its guarantee
             agency for the funds to be returned. According to the University, the guaranty agency
             rejected the request. The University stated that the guarantee agency did not notify it
             that the request had been rejected. The University then resubmitted its request for the
             $5,250 in improper Title IV, HEA disbursements to be returned and the funds were
             returned to the lender.

In addition, 3 of the 50 distance education students (6 percent) received award year 2007-2008
disbursements before successfully completing the credit hours for award year 2006-2007;
therefore, the 3 students were not eligible at the time of the disbursements.23 The three students
received a total of $13,092 in Title IV, HEA program funds from award year 2007-2008 before
completing the credits for academic year 2006-2007.24

            One of the students never became eligible for award year 2007-2008 disbursements,
             and the University did not return the funds until 47 days after the improper
             disbursements were made; and
            Two of the students successfully completed academic year 2006-2007 credit hours
             and became eligible for award year 2007-2008 disbursements from 12 through
             23 days after the improper disbursements were made.

From the leave of absence universe, we randomly selected 40 of the 587 distance education
students who received Title IV, HEA program funds during award year 2006-2007 and were
placed on a leave of absence during their payment period. We tested 42 leaves of absence for the
40 distance education students (2 distance education students each had 2 leaves of absence
during the payment period). Two students (5 percent) received a total of $6,624 in Title IV,
HEA program funds for which they were not eligible at the time of the disbursement.25 The
University returned the funds from 5 to 10 days after the disbursement.

University policy states that the first disbursement will be delivered on or after the start date of
the course for the payment period. According to 34 C.F.R. § 668.164(f)(2)

        If a student is enrolled in a credit-hour educational program that is not offered in
        semester, trimester, or quarter academic terms . . . the earliest an institution may disburse
        title IV, HEA program funds to a student or parent for any payment period is the later
        of—(i) Ten days before the first day of classes of the payment period; or (ii) The date the



23
   One student who received improper disbursements from award year 2007-2008 also received improper
disbursements from award year 2006-2007.
24
   The $13,092 consisted of $5,937 in Subsidized Stafford Loans; $5,000 in Unsubsidized Stafford Loans; and
$2,155 in Pell.
25
   The $6,624 consisted of $1,312 in Subsidized Stafford Loans and $5,312 in Unsubsidized Stafford Loans.
Final Report
ED-OIG/A05I0014                                                                              Page 40 of 155

       student completed the previous payment period for which he or she received title IV,
       HEA program funds . . . .

According to 34 C.F.R. § 682.604(b)(2)

                (i) . . . a school may release the proceeds of any disbursement of a loan only to a
       student . . . if the school determines the student has continuously maintained eligibility in
       accordance with the provisions of § 682.201 from the beginning of the loan period for
       which the loan was intended.

                                         . . . . . . .

               (iv) If, prior to the transmittal of the proceeds of a disbursement to the student,
       the student temporarily ceases to be enrolled on at least a half-time basis, the school may
       transmit the proceeds of that disbursement and any subsequent disbursement to the
       student if the school subsequently determines and documents in the student’s file—
               (A) That the student has resumed enrollment on at least a half-time basis;
               (B) The student’s revised cost of attendance; and
               (C) That the student continues to qualify for the entire amount of the loan,
       notwithstanding any reduction in the student’s cost of attendance caused by the student’s
       temporary cessation of enrollment on at least a half-time basis.

According to 34 C.F.R. § 682.604(d)

                (3) If a student does not register for the period of enrollment for which the loan
       was made, or a registered student withdraws or is expelled prior to the first day of classes
       of the period of enrollment for which the loan is made, the school shall return the
       proceeds to the lender no later than the period specified in § 668.167.
                (4) If the school is unable for any other reason to document that a registered
       student attended school during the period of enrollment for which the loan is made, the
       school must determine the student’s withdrawal date as required under § 682.605, and by
       the deadline described in § 682.607(c), shall notify the lender of the student’s withdrawal,
       expulsion, or failure to attend school, if applicable, and return to the lender—
                (i) Any loan proceeds credited directly by the school to the student’s account;
       and
                (ii) The amount of payments made directly by the student to the school, to the
       extent that they do not exceed the amount of any loan proceeds delivered by the school to
       the student.

According to 34 C.F.R. § 668.21

                (a)(1) If a student officially withdraws, drops out, or is expelled before his or her
       first day of class of a payment period, all funds paid to the student for that payment
       period for institutional or noninstitutional costs under the Federal Pell Grant, FSEOG,
       and Federal Perkins Loan programs are an overpayment.
                (2) The institution shall return that overpayment to the respective title IV,
       HEA programs in the amount that the student received from each program.
                (b) For purposes of this section, the Secretary considers that a student drops out
       before his or her first day of class of a payment period if the institution is unable to
       document the student’s attendance at any class during the payment period.
Final Report
ED-OIG/A05I0014                                                                          Page 41 of 155

According to 34 C.F.R. § 668.4(b)

       Payment periods for an eligible program that measures progress in credit hours and does
       not have academic terms. . . .

                                        . . . . . . .

                (2) For a student enrolled in an eligible program that is more than one academic
       year in length—
                (i) For the first academic year and any subsequent full academic year—
                (A) The first payment period is the period of time in which the student
       completes half the number of credit hours in the academic year and half the number of
       weeks in the academic year; and
                (B) The second payment period is the period of time in which the student
       completes the academic year.

The policy stated in the University’s 2006-2007 catalog, Section 4, pages 67-68, would be in
compliance with 34 C.F.R. § 668.164(f)(2) if it were followed. The policy states that the initial
disbursement will be delivered on or after the start date of the course, depending upon
completion of the financial aid paperwork. Any subsequent disbursement would be delivered
once a student had successfully completed at least 12 undergraduate-level credit hours or at least
9 graduate-level credit hours. The student must also be registered for and start the next class,
and at least half of the loan period (20 weeks for a bachelor program and 18 weeks for a graduate
program) must have passed.

However, the University did not follow its own policy. Instead, the University established a
disbursement schedule for the students for each semester that was based on the expectation that
students would complete each course in the semester successfully and would not take any breaks
between courses. The University did not revise the disbursement schedule when a student’s
course schedule changed.

Potential Costs Associated with Improper Disbursements
Because the University improperly disbursed unearned Title IV, HEA program funds to students
who were not eligible for the disbursements when they were made, the University could have
received interest on the $89,493 and $13,092 in Title IV, HEA program funds from award years
2006-2007 and 2007-2008, respectively. This would be interest on funds to which the University
was not entitled. In addition, borrowers might have incurred additional interest expenses on
improper disbursement of unsubsidized loans.

Based on statistical sampling techniques, we are 90 percent confident that the University
disbursed between $3.7 million and $8.9 million in Title IV, HEA program funds before the
students were eligible to receive the funds. This estimation is applicable only to distance
education students who were at risk of receiving improper Title IV, HEA disbursements during
award year 2006-2007.
Final Report
ED-OIG/A05I0014                                                                     Page 42 of 155

Recommendations

We recommend that the COO for FSA require the University to

5.1    Review its records for distance education students who received Title IV, HEA program
       disbursements (including those who were on leave of absence) during award year 2006-
       2007; identify all disbursements made to students who were not eligible for them at the
       time of the disbursement and never became eligible for the disbursements; and return
       those amounts to the Department or to FFEL Program lenders, as appropriate.

5.2    Develop and implement written policies and procedures to provide reasonable assurance
       that Title IV, HEA program funds are not disbursed until after the University confirms
       the student’s eligibility for the disbursement.

We also recommend that the COO for FSA

5.3    Consider taking appropriate action under 34 C.F.R. Part 668, Subpart G because the
       University disbursed Title IV, HEA program funds to students who were ineligible at the
       time of the disbursement.

University Comments and OIG Response

University Comments: Although the University agreed that, during the audit period, Title IV,
HEA program disbursements might have been made before they should have been, the
University did not agree with the finding or recommendations. The University stated that, of the
90 students tested, the draft finding identified only 1 student who did not earn the funds without
the University returning the funds. Those disbursements since have been repaid.  For the
remaining students who had disbursements made prematurely, the finding concludes that the
students ultimately became eligible for the disbursement, or the University returned the
disbursements. Although the University did not agree that there was a systematic problem with
Title IV, HEA program disbursements, it stated that, after the audit period, it implemented
additional procedures that addressed the concerns identified in the finding. However, because
only one student in the sample received disbursements for which the student never became
eligible and which the University did not return, the University did not believe a 100 percent file
review was warranted. Also, the University stated that the finding was premised on a review of
files from only one award year (2006-2007) and did not provide a basis for expanding the review
to cover a 4-year period.
The University again stated that the finding’s effect was distorted because the samples were not
drawn from the University’s entire student population and were not random samples. Instead,
the audit team drew a sample from a universe selected to target students at risk of receiving
improper disbursements and students on leaves of absence. Therefore, the finding’s effect was
not representative of the entire population of students. The University also stated that the
sampling performed does not provide a basis for a file review to test for purported
noncompliance across the University’s entire student population. The University stated that at
least 15 of the cited improper disbursements reported in the finding were incorrect and provided
documentation that it stated would demonstrate that the disbursements were properly made. 
Final Report
ED-OIG/A05I0014                                                                     Page 43 of 155


OIG Response: The University provided additional documentation for 15 disbursements initially
cited in the finding.  Therefore, we revised the number of instances in which the University made
improper disbursements of Title IV, HEA program funds. However, the University did not
provide evidence to support that, in all instances cited in the finding, it disbursed Title IV, HEA
program funds only to students who were eligible to receive them at the time of the
disbursement.

The University stressed that we identified only 1 of the 90 students for whom the Title IV, HEA
program funds were not eventually earned or returned. We recognize that, in the case of the
other improper disbursements cited in the draft finding, the students eventually completed
enough courses to be eligible for the disbursements, or the University eventually returned the
Title IV, HEA program funds. However, the fact that the students eventually became eligible for
those funds, or the University eventually returned the disbursements, does not discount the fact
that, at the time that the disbursements were made, the students were not eligible to receive them.
If Title IV, HEA program disbursements are made to students prior to the students becoming
eligible, or if Title IV, HEA program funds are disbursed to ineligible students and held for a
time before being returned, there still is a negative impact on the Title IV, HEA programs. The
University’s lack of compliance increases the risk that Title IV, HEA program funds would not
be used for their intended purpose and that Title IV, HEA program loans would not be repaid.
Until the students become eligible for the disbursements, or until the disbursements are returned,
borrowers could incur additional, unnecessary interest on unsubsidized loans. Because our
sample indicated a high error rate in disbursing Title IV, HEA program funds to students who
were not eligible to receive them at the time of disbursement, we believe that a 100 percent file
review is warranted.

We agree with the University that a file review should not be recommended for the entire student
population when the samples used for testing were not drawn from the entire student population.
Therefore, we revised Recommendation 5.1 to be applicable only to students included in the
universes from which the samples were drawn. We also revised Recommendation 5.1 to be
applicable only to award year 2006-2007. However, we disagree with the University’s claim that
the results are distorted. (For our general response to the University’s comments on how we
selected our samples, see the OIG Response to the University’s General Comments for Finding
No. 2) Our samples were drawn from the sub-universe of students for whom improper
disbursements were likely to have been made, and our estimation applies only to that sub-
universe.  We did not project based on the University’s entire student population. To ensure that
the language in the finding is clear, we added language to clarify that the estimation is applicable
only to the population of distance education students who received Title IV, HEA program funds
from award year 2006-2007 and who we identified as being at risk of receiving improper
disbursements.  

The University stated that, after the audit period, it implemented additional procedures that
address the concerns expressed in the report.  The University provided the additional written
policies and procedures that it approved for its servicer, ACS, and were effective July 2008. The
policies and procedures provide the criteria under which disbursements should be released.
However, for first disbursements, the policies and procedures state that a student must have an
Final Report
ED-OIG/A05I0014                                                                           Page 44 of 155

acceptable school status to receive the disbursement but there is no description of what an
acceptable status is. Also, the policies and procedures are for its servicer. The University did
not provide policies and procedures applicable to its own employees. The University is
ultimately responsible for ensuring that Title IV, HEA program funds are disbursed only to
eligible students, and it should develop its own policies and procedures to ensure it is in
compliance with regulations related to disbursement of Title IV, HEA program funds.

FINDING NO. 6 – Lack of Support for Students’ Leaves of Absence

The University did not always have documentation to support distance education students’ leaves
of absence. We randomly selected a sample of 40 of the 587 distance education students who
received award year 2006-2007 Title IV, HEA program funds and who were placed on a leave of
absence. We reviewed a total of 42 leaves of absence (2 students were on a leave of absence
twice each during the award year). The University could not support leave of absence start dates
for 19 leaves of absence (45 percent).

          For 15 leaves of absence, the students had academic activity to support attendance,
           but the actual last date of attendance as supported by an academically related activity
           was not the day the University used as the last date of attendance (the University used
           the last date of attendance as the start date of the leaves of absence).

          For three leaves of absence, there was no evidence of academic activity in the course
           used to determine the last date of attendance. The University used the last day of the
           first week of class as the last date of attendance, but no activity was noted in the on-
           line learning management system for one and only introductions were found for the
           other two. Therefore, the actual last date that the distance education student attended
           should have been the last date of academically related activity for the previous class.

          For one leave of absence, we could not determine the last date of attendance to
           support the start of the leave of absence. Because of archiving problems, all the dates
           for the discussions posted were recorded in the on-line learning management system
           as December 19, 2006.

Because the correct last date of attendance was not used as the start of the leaves of absence, 10
of the 19 students were on leaves of absence longer than the maximum number of days allowed
per the University’s policy. However, none of the leaves of absence exceeded 180 days in any
12-month period, the maximum number of days allowed by 34 C.F.R. § 668.22(d)(1)(vi).

Approved Leaves of Absence Requirements
According to 34 C.F.R. § 668.22(d)(1)

       For purposes of this section (and, for a title IV, HEA program loan borrower, for
       purposes of terminating the student's in-school status), an institution does not have to
       treat a leave of absence as a withdrawal if it is an approved leave of absence. A leave of
       absence is an approved leave of absence if— (i) The institution has a formal policy
       regarding leaves of absence; (ii) The student followed the institution's policy in
Final Report
ED-OIG/A05I0014                                                                             Page 45 of 155

       requesting the leave of absence; . . . iv) The institution approved the student's request in
       accordance with the institution's policy. . . .
According to 34 C.F.R. § 668.22(d)(1)(vi)

       . . .[A] leave of absence is an approved leave of absence if . . . [t]he number of days in the
       approved leave of absence, when added to the number of days in all other approved
       leaves of absence, does not exceed 180 days in a 12-month period. . . .

According to the University’s 2006-2007 catalog, the start date of the leave of absence should be
based on the last date of documented attendance. Students who are requesting a leave of absence
must complete a leave of absence request form. The leave of absence requests must be signed
and submitted on or before the last day of class attendance. Requests submitted after the last day
of attendance require an explanation. Requests submitted 15 days after the last date of
attendance will not be approved. [Section 8, pages 270 (Associates program) and 281-282
(Bachelors program), and Section 9, page 298 (Graduate program)].

According to the University’s 2006-2007 catalog, leaves of absence cannot exceed 65 days for
associates programs or 60 days for bachelors or graduate programs. Specifically for the
bachelors and graduate programs, students experiencing extreme temporary hardship that limits
their ability to return to school within 60 days may contact the Financial Aid Office to discuss
potential options. [Section 8, pages 270 (Associates program) and 281-282 (Bachelors
program), and Section 9, page 298 (Graduate program)].

There is a risk that distance education students are not on an approved leave of absence and
should be withdrawn from the University. For those students, the University could be retaining
Title IV, HEA program funds that should be returned to the lender or the Department. There
also is a risk that distance education students might have been on leaves of absence longer than
permitted by Federal regulations or University policy. This would delay the withdrawal of
students and delay the return of Title IV aid calculations for distance education students who did
not return from their leaves of absence. The results of our sample disclosed that 10 of 19
distance education students with unsupported leaves of absence had leaves of absence that
exceeded the maximum number of days allowed by University policy. These 10 students were
on leaves of absence between 61 and 170 days, which exceeded the maximum number of days
allowed by University policy by 1 to 90 days. (The students’ leaves of absence did not exceed
the 180 maximum number of days per Federal regulations.)

Recommendations

We recommend that the COO for FSA require the University to

6.1    Revise and implement its policies and procedures to provide reasonable assurance that a
       student’s last date of attendance is based on the last date of academically related activity
       as supported by the students’ coursework.
Final Report
ED-OIG/A05I0014                                                                       Page 46 of 155

University Comments and OIG Response
 
University Comments: The University did not agree with the finding or the recommendations.
The University disagreed with the finding’s assertion that the University did not always have
documentation to support distance education students’ leaves of absence during award year
2006-2007. However, it did agree that leave of absence forms were missing from 2 of the
40 student files that we reviewed. For the two students for whom leave of absence forms were
not maintained in the files, the University stated that it was clear from other records on file that
the students submitted and properly requested the leaves of absence. The University provided
printouts from the University’s database system that showed the University’s receipt and
approval of the leaves of absence for the two students. In both instances, the records supported
the University’s adherence to applicable regulations and its own policies, and there was no loss
to Title IV, HEA programs. 

The University stated that the draft finding indicated that 19 of the 40 students sampled had an
unsupported last date of attendance, although the draft report acknowledged that only 11 of the
19 received a leave of absence in excess of the University’s leave of absence policy. The
University also noted that all but four of the purported discrepancies in the last dates of
attendance are 7 days or less, and one resulted in a later last date of attendance. Although the
University disagreed with the conclusion that 11 of the 40 students received a leave of absence in
excess of University policy, the University stated that the assertion of noncompliance was with a
University policy, not with the law.  The University stated that it could not be sanctioned for
noncompliance with an internal policy. 

The University also asserted that it correctly calculated the return of Title IV aid calculations for
the two students cited in the finding. For one student, the University stated that it correctly
concluded that the student completed at least 60 percent of the payment period and that no return
was required. For the second student, the University stated that it correctly calculated and paid
the return amounts owed. The University stated that, even if the two students had incorrect
return of Title IV aid calculations arising from their leaves of absence, the small error rate would
not justify a full file review. Also, the University stated that the finding is premised on a review
of files from one award year (2006-2007) and does not provide any basis for expanding the
review to cover a 4-year period. 

OIG Response: Based on the University’s comments and additional documentation provided, we
concluded that the University had sufficient documentation to support that two students
originally cited in the finding were on approved leaves of absence. We also concluded that two
students originally cited as having improper return of Title IV aid calculations attended more
than 60 percent of the payment period, and a return of Title IV, HEA program funds was not
required. Therefore, we revised the finding accordingly.  We also removed draft
Recommendations 6.1, 6.2, and 6.3 (b) (related to improper return of Title IV aid calculations
and retention of leave of absence forms) and renumbered the remaining recommendations. 

However, we disagree with the University’s position that we incorrectly determined the last date
of attendance for the students in the sample. Based on our determination of the students’ last
dates of attendance, 19 of the 40 students in our sample had unsupported last dates of attendance,
Final Report
ED-OIG/A05I0014                                                                     Page 47 of 155

and 10 were on leaves of absence longer than permitted by the University’s leave of absence
policy. We also disagree with the University’s assertion that the regulations do not allow it to be
sanctioned for noncompliance with internal policy. According to 34 C.F.R. § 668.22(d)(1), the
University has the responsibility to develop and implement a formal leave of absence policy.
The University’s leave of absence policy is published in its catalog and made available to its
students. Because the regulation requires the University to have a formal leave of absence
policy, the University is accountable for following its own policy. Although the students we
included in our finding were not on leaves of absence longer than the maximum number of days
allowed by Federal regulations, they were on leaves of absence longer than the maximum
number of days allowed by the University’s own policy. According to 34 C.F.R. § 668.22(d)(2),
the University would have to use its own leave of absence policy to determine whether a student
did not resume attendance at or before the end of the leave of absence and should be treated as a
withdrawal.
Final Report
ED-OIG/A05I0014                                                                                           Page 48 of 155



                        OBJECTIVES, SCOPE, AND METHODOLOGY


The objectives of our audit were to determine whether, for its distance education programs, the
University complied with selected provisions of the HEA and regulations governing (1) incentive
compensation; (2) student eligibility; (3) disbursements; and (4) return of Title IV, HEA program
funds. The audit covered the period from July 1, 2006, through June 30, 2007 (award year 2006-
2007).

To achieve our audit objectives, we performed the following procedures.

           1. Reviewed selected provisions of the HEA, regulations, and FSA guidance applicable
              to the audit objectives to gain an understanding of applicable law, regulations, and
              guidance.

           2. Identified the amount of Title IV, HEA program funds that the University received on
              behalf of its students during award year 2006-2007.

           3. Reviewed the University’s Web site, Bridgepoint Education, Inc.’s Web site, on-line
              newspaper articles, and the University’s 2006-2007 catalog to gain an understanding
              of the University’s history and organization.26

           4. Reviewed written policies and procedures and interviewed University officials,
              Bridgepoint Education officials, and ACS officials to gain an understanding of the
              University’s internal control structure, policies, procedures, and practices applicable
              to the administration of its Title IV, HEA programs.

           5. Reviewed Bridgepoint Education, Inc. And Its Subsidiary, San Diego, California,
              Financial Statements December 31, 2006 and 2005; Ashford University L.L.C.,
              Compliance Attestation Examination Of The Title IV Student Financial Assistance
              Programs For the Period Ending December 31, 2006; Bridgepoint Education, Inc.
              And Its Subsidiary Financial Statements, Poway, California, December 31, 2005 and
              2004; Ashford University Compliance Attestation Examination Of The Title IV
              Student Financial Assistance Programs For the Period Ending December 31, 2005;
              Bridgepoint Education, Inc. and Subsidiaries, Consolidated Financial Statements
              December 31, 2007, 2006 and 2005; and Ashford University Compliance Attestation
              Examination Of The Title IV Student Financial Assistance Programs For The Fiscal
              Year Ending December 31, 2007, to gain an understanding of any prior audit findings
              that could be relevant to our audit objectives.

           6. Reviewed reports by or contacted, or both, the following oversight agencies: Higher
              Learning Commission, Iowa College Student Aid Commission, Iowa Department of

26
     Although requested, we did not receive the University’s organizational chart or a staff directory.
Final Report
ED-OIG/A05I0014                                                                                Page 49 of 155

             Education, Wisconsin Educational Approval Board, Tennessee Higher Education
             Commission, Illinois Board of Higher Education, and the Great Lakes Higher
             Education Guaranty Corporation. We reviewed reports from the oversight agencies
             to determine whether the reports included findings and recommendations covering
             Title IV, HEA programs that could affect our audit objectives. We contacted the
             oversight agencies to obtain information that could be relevant to our audit objectives.

        7. Reviewed personnel files for 45 enrollment advisors randomly selected from a
           universe of 262 enrollment advisors from the San Diego, California, location who
           were active employees at any point during award year 2006-2007. We stratified the
           universe into five strata and selected a random sample from each stratum. The strata
           were as follows:

           (a) 61 enrollment advisors who were still active employees as of March 2009;
           (b) 25 enrollment advisors terminated after a year or more of employment;
           (c) 69 enrollment advisors terminated after 100 or more days and less than 1 year of
               employment;
           (d) 34 enrollment advisors that had been promoted to management positions as of
               March 2009; and
           (e) 73 enrollment advisors who were terminated in less than 100 days.

             In the sample there were: 10 enrollment advisors from the first stratum; 4 from the
             second stratum; 11 from the third stratum; 5 from the fourth stratum; and 15 from the
             fifth stratum. We reviewed the enrollment advisors’ personnel files to determine
             whether the University’s process for evaluating enrollment advisors resulted in
             compensation amounts being based on securing enrollments. Specifically for our
             incentive compensation objective, we evaluated the University’s compensation plan
             that was in effect from April 2007 through December 2008. We did not evaluate any
             of the University’s compensation plans that were in effect either before or after this
             period.

        8. Reviewed the academic and financial aid records and verification comparison
           worksheets for a sample of 38 students randomly selected from a universe of
           3,021 distance education students who received Title IV, HEA program funds from
           award year 2006-2007 and were selected for verification.

        9. Reviewed the academic and financial aid records, withdrawal forms, return of
           Title IV aid calculations, leave of absence forms, iLink reports,27 and Common
           Origination and Disbursement system (COD) reports for a sample of 40 students
           randomly selected from a universe of 587 distance education students who received
           Title IV, HEA program funds for award year 2006-2007 and went on a leave of
           absence during the award year. Two students in our sample were on leaves of
           absence twice during award year 2006-2007. Therefore, we reviewed a total of 42
           leaves of absence for the 40 students in our sample.
27
  iLink is an electronic loan processing system used by the Iowa College Student Aid Commission, a guarantee
agency the University uses.
Final Report
ED-OIG/A05I0014                                                                               Page 50 of 155

        10. Reviewed the academic and financial records for a sample of 50 students randomly
            selected from a universe of 3,521 distance education students who received Title IV,
            HEA program funds for award year 2006-2007 and, based on our own analysis, were
            at risk of receiving disbursements for which they were ineligible at the time of the
            disbursement. We developed a targeted universe of students at risk of receiving
            improper disbursements by applying analytical tools to the student disbursement and
            transcript files. We determined which students were at risk of improper
            disbursements by using analytical tools to compare the length of time the student
            completed the first disbursement period’s credits with the timing of the disbursements
            (based on credit hours earned on or after July 1, 2006). If the disbursements were
            made prior to the student completing the prior disbursement period’s credits, we
            considered the student to be at risk of an improper disbursement. The universe and
            sample included only disbursements that were identified through our analysis as
            being at risk of being an improper disbursement. From a universe of $24,458,497 in
            Title IV, HEA disbursements that we identified as at risk of being an improper
            disbursement,28 we reviewed $342,949.29 Our testing disclosed that there could be
            multiple disbursements in the universe for students who had multiple enrollments
            during award year 2006-2007 (such as students who completed an associates degree
            and then enrolled in a bachelors degree program).

        11. Reviewed the academic and financial aid records, withdrawal forms, return of Title
            IV aid calculations, iLink reports, and COD reports for a sample of 24 students
            judgmentally selected and 50 students randomly selected from a universe of
            3,779 distance education students who received Title IV, HEA program funds for
            award year 2006-2007 and withdrew from the University, had a zero GPA, or both.
            For the judgmental sample, we selected students to provide coverage of those who
            withdrew and those with a zero GPA. We also selected students to provide coverage
            of those who had Title IV, HEA program funds returned and those who did not. We
            selected 10 students who withdrew and had a zero GPA (5 who had Title IV, HEA
            program funds returned and 5 who did not); 9 students who withdrew and did not
            have a zero GPA (5 who had Title IV, HEA program funds returned and 4 who did
            not); and 5 students who did not withdraw and had a zero GPA (3 who had Title IV,
            HEA program funds returned and 2 who did not). For the random sample, we
            reviewed a total of 57 withdrawals for the 50 students in our sample (7 students
            withdrew twice during the award year). We reviewed the academic and financial aid
            records of the 74 students in the samples to determine whether the University
            complied with the requirements related to the return of Title IV aid.




28
   $10,272,321 in Subsidized Stafford Loans; $12,316,696 in Unsubsidized Stafford Loans; $16,557 in PLUS;
$1,847,923 in Pell; $1,000 in FSEOG; and $4,000 in National SMART grants.
29
   $186,794 in Subsidized Stafford Loans; $138,363 in Unsubsidized Stafford Loans; and $17,792 in Pell.
Final Report
ED-OIG/A05I0014                                                                     Page 51 of 155

We relied, in part, on data provided to us by University officials, including a report listing all
students who received Title IV, HEA program funding from award year 2006-2007. We
conducted interviews with the Director of Business Analytics and the Senior Database
Administrator and reviewed the query language that the University used to extract the universes
we used. We also queried the National Student Loan Data System to identify the University’s
students who received Pell and FFEL funds from the University during award year 2006-2007.
We then compared the two sets of data and were able to reconcile any differences. We used the
data provided by University officials to draw the samples that we used to test the University’s
compliance with student verifications, return of Title IV aid calculations, leaves of absence, and
disbursements. For the enrollment advisor universe that we used for incentive compensation
testing, we received a description from the Payroll Manager of how that universe was created.
For this universe, we compared a sample of payroll registers from the Admissions Department
with the list of enrollment advisors in the universe. Based on our analyses and testing, we
determined that the data were sufficiently reliable to be used for the purposes of our audit.

We conducted our fieldwork from May 2008 through August 2009 at the University’s offices in
Clinton, Iowa, and San Diego, California, as well as at our offices. We discussed the results of
our audit with University officials on September 2, 2009, April 29, 2010, and December 17,
2010.

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.
 Final Report
 ED-OIG/A05I0014                                                                                Page 52 of 155

               APPENDIX A: Enrollment Advisor Evaluation Factors
 Table 8. Evaluation Factors Implemented in April 2007*
                                                                                  Considered
                                                                                  Directly or
                                                                                   Indirectly     Maximum
                                                                 Considered        Related to    Number of
                                                                Quantitative or     Securing        Points
                                                                Qualitative by    Enrollments    Available on
    Category                 Definition/Rating Criteria         the University      by OIG        the Matrix
                      A student who has satisfied the
                      attendance requirement and received a
                      letter grade of A, B, C, D, F, or I for
Net Starts            his or her initial course.                 Quantitative        Yes               30
Percentage of
Gross                 Number of students who complete the
Applications to       first week of attendance divided by the
Gross Starts          gross number of applications.              Quantitative        Yes               12
                      Number of students who complete
Percentage of         their first course divided by the total
Gross Starts to Net   number of students who complete their
Starts                first week of attendance.                  Quantitative        Yes               12
Percentage of
Gross                 Number of students who complete
Applications to       their first course divided by the total
Net Starts            number of applications.                    Quantitative        Yes               12
                      Average number of phone calls made
                      to prospective students per week.
Outbound Calls        Credit is given for making a call,
Per Week              regardless of whether the prospective
(average)             student actually answers the phone.        Quantitative         No                2
                      Number of students contacted divided
Percentage of         by the total number of prospective
Lead to Contacts      students.                                  Quantitative         No                2
Percentage of
Leads to              Number of applications divided by the
Applications          total number of prospective students.      Quantitative        Yes                2
Percentage of
Leads to Net          Number of net starts divided by the
Starts                total number of prospective students.      Quantitative        Yes                2
Applications Per      Average number of enrollment
Week (average)        applications per week.                     Quantitative        Yes                2
                      Prospective students who are referred
Total Referrals Per   to the University by other prospective
Month                 students or current students.              Quantitative         No                2
Administrative/
Organization          Paperwork is completed.                     Qualitative         No                2
 Final Report
 ED-OIG/A05I0014                                                                                  Page 53 of 155

 Table 8. Evaluation Factors Implemented in April 2007*
                                                                                   Considered
                                                                                   Directly or
                                                                                    Indirectly       Maximum
                                                                 Considered         Related to      Number of
                                                                Quantitative or      Securing          Points
                                                                Qualitative by     Enrollments      Available on
     Category              Definition/Rating Criteria           the University       by OIG          the Matrix
Demonstrates
Effective Problem
Solving Skills       Resolves student issues.                       Qualitative           No                 2
Customer             Ratings received on Customer
Satisfaction         Satisfaction Survey.                           Qualitative           No                 2
Reporting/           Completion of weekly and monthly
Forecasting          reports.                                       Qualitative           No                 4
Communicates
Effectively-Oral     Contributing during meetings.                  Qualitative           No                 4
Communicates
Effectively-         Creative use of Contact Management
Writing              Strategies.                                    Qualitative           No                 4
Informs
Supervisor and
Affected
Personnel of
Status of Current
Assignments
Relative to the
Company              Team achievement of performance
Strategic Plan and goals as stated in the company
Goals                operational plan.                              Qualitative           Yes                2
Shows flexibility
by accepting new
ideas                Acceptance of Change                           Qualitative           No                 2
Total Points                                                                                                100
Total Points
Directly Related to
Securing
Enrollments                                                                                74
Total Points
Indirectly Related
to Securing
Enrollments                                                                                26
*The information in the table is based on the enrollment advisor evaluation matrices used from April 2007 through
December 2008. The definitions in this table were provided or confirmed by the University’s Vice President of
Finance.
Final Report
ED-OIG/A05I0014                                                                   Page 54 of 155




    APPENDIX B: University Comments on the Draft Audit Report,
                          July 30, 2010


(The University provided its comments to the draft and several attachments with its,
 July 30, 2010, letter responding to the draft audit report. Because of the voluminous nature of the
attachments to the University’s comments and the personally identifiable information within, we
have not included them in APPENDIX B. Copies of the attachments to the University’s comments,
less the personally identifiable information, are available on request. All personally identifiable
information mentioned in the University’s comments was replaced with brackets.)
Final Report
ED-OIG/A05I0014                                                                             Page 55 of 155


ASHFORD
 UNIVERSITY
      FOUNDED 1918

July 30, 2010


Gary D. Whitman Regional Inspector General for Audit
U.S. Department of Education
Office of Inspector General
Chicago/Kansas City Audit Region Citigroup Center
500 W. Madison, Suite 1414
Chicago. 1L 60661

        Re: Draft Audit Report, Control Number ED-OIG/A05IO014

Dear Mr. Whitman:

Please find enclosed our response to the draft audit report, Control Number ED-OIG/A05IOOl4. The deadline for
submission of this response was extended to July 30, 2010 by e-mail from Lisa Robinson on July 6, 2010. Please
let me know if you have questions regarding the response.

Sincerely,

/s/

Jane McAuliffe, Ph.D. President and CEO

Enclosures




                                                                                       SM
                  {D0321094.DOC/1 ) HIGHER   EDUCATION MADE AFFORDABLE

      400 NORTH BLUFF BLVD· CLINTON, IA 52732· T.800.242.4153 . P.563.242.4023 . WWW.ASHFORD.EDU
Final Report
ED-OIG/A05I0014                                                                                                    Page 56 of 155

                                          TABLE OF CONTENTS
                 
I.                  Introduction ......................................................................................................59 

II.                 Procedural History...........................................................................................61 

        A.                            Commencement of audit and conduct of field work .................61 

        B.                            Exception Reports ........................................................................61 

        C.                            Exit Interview ...............................................................................61 

         1.     Tentative findings previously identified ........................................................... 61 
         2.     New tentative finding .......................................................................................... 62 
        D.                    Draft Audit Report ......................................................................62 

III.                Draft Finding 1: Documentation Supporting Enrollment Advisor
                    Compensation ...................................................................................................62 

        A.                            Summary of OIG position ...........................................................62 

        B.                            Summary of the University’s response ......................................63 

        C.                            Discussion......................................................................................65 

          1.    The University did not make bonus, commission, or other incentive payments
                based directly or indirectly on success in securing enrollments ..................... 65 
                a.           The plain language of the statute                                                              65 
                b.           The expressly stated Congressional intent                                                      66 
                c.           DOE’s acknowledgement of the statute’s meaning                                                 66 
          2.    The burden is on the government to establish a violation, not on the
                University to establish the lack of a violation ................................................... 67 
          3.    The University did not base salary solely on the number of students
                recruited, admitted, enrolled or awarded financial aid................................... 68 
          4.    The University complies with applicable record-keeping regulations ........... 72 
                a.           Quantitative performance factors                                                               72 
                b.           Qualitative Performance Factors                                                                73 
                c.           Calculation of Salaries                                                                        74 
                d.           Regulations                                                                                    75 
        D.                     Conclusion ....................................................................................77 

IV.                 Draft Finding 2: Calculation of Return-to-Title-IV Payments ...................77 

        A.                            Introduction ..................................................................................77 

        B.                            AU Correctly Determined the Last Date of
                                      Attendance at an Academically Related Activity ......................79 
Final Report
ED-OIG/A05I0014                                                                                                     Page 57 of 155

         1.    AU’s methodology for calculating withdrawal dates was more conservative –
               and resulted in larger Title IV refunds – than required by the regulations.. 80 
         2.    The draft finding arbitrarily uses the midpoint analysis for a few students,
               but uses a methodology more aggressive than required by law for all other
               students ................................................................................................................ 81 
         3.    AU correctly calculated and substantiated its withdrawal date
               determinations ..................................................................................................... 82 
               i.  AU applied its attendance policy for distance learning students .................... 82 
               ii.  AU monitored on-line clicks in its on-line learning environment, but counted
                     only clicks into academically-related activities .............................................. 83 
               iii.  The University accurately calculated and substantiated the withdrawal dates
                     for each of the students cited in Finding 2 ...................................................... 84 
         4.    The auditors’ withdrawal calculations are inconsistent with DOE regulations
               and the University’s policy ................................................................................. 85 
               i.  AU properly calculated the withdrawal date as the last day of the week with
                     two separate days of attendance ...................................................................... 85 
               ii.  The auditors’ withdrawal date calculations erroneously disregard dates on
                     which AU documented student attendance ..................................................... 87 
         5.    Finding 2 improperly seeks to retroactively enforce a proposed regulation
               which is yet to be promulgated or to take effect .............................................. 88 
       C.                        AU Correctly Determined Payment Period
                                 Lengths ..........................................................................................89 

       D.                            AU Correctly Projected Tuition Charges In Its
                                     Return Calculations .....................................................................91 

       E.                            OIG Recommendations 2.1 Through 2.5 Must Be
                                     Withdrawn ....................................................................................93 

V.                Draft Finding 3: Timeliness of Return-to-Title-IV Payments ....................96 

       A.                            Ashford University Used A Stricter R2T4 Deadline
                                     Methodology Than Required By Governing Law.....................97 

       B.                            OIG Recommendations 3.1 Through 3.3 Must Be
                                     Withdrawn ....................................................................................98 

VI.               Draft Finding 4: Authorization to Retain Student Credit Balances ........100 

       A.                            Introduction ................................................................................100 

       B.                            The University’s prior authorization form
                                     complied with regulations .........................................................100 

       C.                            The Department has approved the University’s
                                     current credit balance authorization form ..............................101 
Final Report
ED-OIG/A05I0014                                                                                          Page 58 of 155

         D.                   OIG Recommendations 4.1 Through 4.3 Must Be
                              Withdrawn ..................................................................................102 

VII.           Draft Finding 5: Disbursements of Title IV Funds ....................................104 

         A.                   Introduction ................................................................................104 

         B.                   The Draft Finding Does Not Involve Unreturned
                              or Unearned Title IV Funds: The Disbursements
                              For All But One of the 90 Students Tested Were
                              Fully Earned or Fully Returned to the Title IV
                              Programs .....................................................................................104 

         C.                   The Draft Finding’s Results Are Distorted Because
                              They Are Not Based On A Random Sample of
                              Files And Contain Errors ..........................................................105 

         D.                   Recommendations ......................................................................106 

VIII.          Draft Finding 6: Leaves of Absence ............................................................107 

         A.                   The Draft Finding concedes that leaves of absence
                              did not exceed federal limits......................................................107 

         B.                   An institution cannot be sanctioned merely for a
                              purported violation of internal policy ......................................107 

         C.                   The draft finding incorrectly recalculates the
                              duration of the leaves of absence ..............................................108 

         D.                   The University correctly calculated R2T4 returns
                              for the two cited students ..........................................................108 

         E.                   Institutions cannot be sanctioned for missing LOA
                              paperwork for two students ......................................................109 

         F.                   OIG Recommendations 6.1 through 6.3 Must Be
                              Withdrawn ..................................................................................110 
Final Report
ED-OIG/A05I0014                                                                                     Page 59 of 155

     ASHFORD UNIVERSITY’S RESPONSE TO THE DRAFT AUDIT REPORT OF THE
                   OFFICE OF THE INSPECTOR GENERAL

I.       Introduction

       Ashford University submits this response to the draft audit report issued by the Office of
Inspector General (OIG) on May 24, 2010.30

       The University wishes to state at the outset its appreciation for the courtesy and
professionalism shown by the auditors and OIG officials throughout the course of the audit

         This response:

            discusses each of the findings and recommendations in the draft audit report,

            states whether and to what extent the University agrees or disagrees with each finding
             and recommendation,

            provides the factual basis and legal grounds for the areas of disagreement, and

            describes policies and procedures taken to date by the University to strengthen its
             performance in certain areas covered by the draft report.

        The University’s mission is to provide accessible, affordable, innovative, high-quality
learning opportunities and degree programs that meet the diverse needs of individuals pursuing
integrity in their lives, professions, and communities.

        In carrying out that mission, the University understands and is committed to fulfilling its
obligations and responsibilities to its students, faculty, staff, accrediting agency, and the U.S.
Department of Education, including fostering and maintaining a culture of adherence to the
highest ethical standards and regulatory requirements.

       The University therefore appreciates this opportunity to respond to the draft audit report,
and looks forward to working with the OIG and the U. S. Department of Education’s (DOE’s)
Office of Federal Student Aid (FSA) to resolve the draft audit findings fairly and successfully.




30
  The draft audit report originally set a July 8, 2010 deadline for this response, 45 days after the date of the draft
audit report. On July 6, 2010, OIG extended the deadline to July 30, 2010, 30 days after the OIG made certain audit
work papers available for review by the University.
Final Report
ED-OIG/A05I0014                                                                    Page 60 of 155

Summary of Draft Findings and Responses

       Draft Finding 1: The draft report states that the University’s compensation plan for
Enrollment Advisors rewards success in securing enrollments. Although it does not find that the
plan violated the incentive compensation regulation, it does find that the University failed to
maintain sufficient documentation to prove compliance with the regulation.

        The University disagrees. It paid no commissions, bonuses or other incentive payments
to its Enrollment Advisors. Consistent with the statute and regulation, as clearly shown by
University records made available to the auditors, as the auditors acknowledged in their work
papers, and as the University’s expert economic and statistical expert determined from an
analysis of salary adjustments, actual salary adjustments were based on successful performance
of a variety of job factors and not solely on the number of students recruited.

        Draft Finding 2: The draft report states that the University incorrectly calculated
returns of Title IV funds when students withdrew, resulting in the University’s retaining between
$1.2 and $2.3 million in funds during the 2006-2007 award year.

        The University disagrees. It correctly calculated the cited returns of Title IV funds upon
student withdrawals with one nominal exception totaling $101.25. In fact, it used a calculation
methodology more stringent than required by law and regulation. The University’s methodology
resulted in its retaining fewer funds, and returning more to students and Title IV lenders, than
required by the regulations.

       Draft Finding 3: The draft report states that the University was late in some of its Title
IV refund payments during the 2006-2007 award year.

       The University agrees that some returns were late. The University’s 2007 Title IV
compliance audit, previously submitted to DOE, disclosed untimely payments during the audit
periods, in response to which the University submitted a letter of credit to the DOE and
implemented corrective actions. The success of those corrective actions is demonstrated by the
absence of material untimely return findings in the University’s Title IV compliance audits for
2008 and 2009.

       Draft Finding 4: The draft report states that the University retained student credit
balances without having obtained proper authorization from the students.

      The University disagrees that its prior credit balance authorization did not comply with
DOE regulations. Nonetheless, the University revised the form, submitted it to DOE for review,
and now uses the form as approved by DOE.

       Draft Finding 5: The draft report states that Title IV disbursements were not always
made in accordance with DOE regulations or University policy.

        The University agrees that some disbursements were made before they should have been.
It notes that 89 of the 90 disbursements sampled by the auditors were fully earned through
Final Report
ED-OIG/A05I0014                                                                    Page 61 of 155

successful completion of coursework or were returned in full by the University to the Title IV
Programs upon learning that the disbursement had not been earned. The exception, in the
amount of $5,520, has since been returned to the Title IV program provider.

      Draft Finding 6: The draft report states that the University did not always maintain
documentation to support student leaves of absence.

        The University agrees that a leave-of-absence form was missing from the file of two of
the 40 students the auditors sampled and reviewed. Other documentation supplied by the
University, however, demonstrates that the two students did in fact sign the form, and regulations
do not require that the institution maintain such forms. Additionally, as the draft audit report
recognizes, none of the leaves of absence exceeded regulatory time limits. As a result, none
resulted in an over-payment or under-refund of any Title IV program funds.

II.    Procedural History

       A. Commencement of audit and conduct of field work

        On April 30, 2008 auditors of the U.S. Department of Education’s Office of the Inspector
General notified Ashford University of the commencement of the audit. Over the course of the
next sixteen months, the OIG conducted eight one-week site visits to the University’s campus in
Clinton, IA, as well as one- and two-week site visits to its administrative offices in San Diego,
CA, to interview employees, inspect and copy documents, and electronically access the
University’s information technology systems. The University fully cooperated in the
investigation, during which the OIG interviewed approximately 49 employees, an unknown
number of former employees, state regulators or other third parties, reviewed the personnel files
of approximately 79 employees, and were provided copies of thousands of pages of other
documents. OIG personnel were provided full, read-only access to the University’s information
technology systems, including computer terminals on the University’s premises. On a number of
occasions, OIG auditors requested, and the University provided, additional information to
supplement what they had obtained during their visits, interviews, and access to electronic
information systems.

       B. Exception Reports

        The auditors established a system pursuant to which they would provide a written
Exception Report, to which the University would have an opportunity to respond, if and when
they identified a tentative audit finding. During the course of the audit, eight such Exception
Reports were provided. The University promptly responded to each.

       C. Exit Interview

           1. Tentative findings previously identified

       On September 2, 2009, sixteen months after the audit began, the auditors notified the
University that field work had been completed, conducted an exit interview to advise University
Final Report
ED-OIG/A05I0014                                                                     Page 62 of 155

officials concerning the tentative findings, and advised the officials that a draft audit report
would be issued within about 30 days. The University was pleased to learn at the exit interview
that a number of the issues contained in the Exception Reports had been resolved favorably as a
result of the University’s responses, and were not identified as tentative findings.

           2. New tentative finding

         Although the auditors had conducted document and electronic data base reviews, as well
as employee interviews, concerning the University’s compensation of its enrollment advisors and
financial aid officers beginning in June 2008 and extending into the summer of 2009, the
Exception Reports contained no references or tentative findings concerning compensation. Nor
did the University expect any such exception, having supplied all documents requested and being
confident that its compensation plan, developed with the advice of counsel, was compliant with
the letter and spirit of the Higher Education Act.

        University officials therefore were surprised upon being told at the exit interview of a
tentative finding that the compensation plan for enrollment advisors violated the Higher
Education Act because salary adjustments were based directly and indirectly on student
enrollments. The University requested, and was granted, an opportunity to review the basis for
this tentative finding and to respond in writing. On September 11, 2009, the University
submitted its response.

       D. Draft Audit Report

        The OIG issued its draft audit report approximately nine months later, on May 24, 2010.
In all but one respect it is consistent with what the University was told in the Exit Interview. The
exception concerns incentive compensation. The draft audit report does not contain a finding
that the University violated the Higher Education Act or applicable regulations. Indeed, the draft
report acknowledged that it could not determine that salaries were based solely on recruiting
success. Instead, the draft audit report finds that the University did not maintain sufficient
documentation to support the performance evaluations upon which salary adjustments were
made. It therefore recommends that the Federal Student Aid office require the University to
provide such documentation, and to consider sanctions if further documentation is not provided.
III.    Draft Finding 1: Documentation Supporting Enrollment Advisor Compensation

       A. Summary of OIG position

       Draft Finding 1 alleges that the University failed to maintain records demonstrating that
its compensation plan for enrollment advisors did not result in salary adjustments based solely on
the number of students enrolled.

        The draft accordingly would recommend that the Department of Education’s Office of
Federal Student Aid (FSA) require the University to provide such records, and, if it fails to do so,
consider instituting a fine, limitation, suspension, or termination action under Subpart G of Part
668 of the Code of Federal Regulations.
Final Report
ED-OIG/A05I0014                                                                                     Page 63 of 155

         B. Summary of the University’s response

        At the outset, the University notes that, after sixteen months of field work and nine
months of analysis, the draft audit report does not contain a finding that the University violated
the incentive compensation statute or regulation. In fact, after performing a study “to analyze
enrollment advisor evaluations and determine the relationship between changes in incentive and
non-incentive points with changes in salaries,” the auditors reached the following conclusion:

                 Based on the analysis performed, we determined that there appears to be a much
         stronger correlation between the changes in incentive points with the changes in salary,
         but the non-incentive points still have an effect on the salary adjustments. Ashford
         University’s evaluation matrix for enrollment advisors is designed to give incentive
         points more influence on salary calculation with non-incentive points having a lesser
         effect on salaries. Therefore, if Ashford University used the matrix to calculate
         enrollment advisor salaries, it would likely be in compliance with the Safe Harbor Rule
         as what drives the salary adjustments does not appear to be based solely on securing
         enrollments (incentives).31

Another study by the auditors, whose purpose was “to analyze Ashford’s salary calculations for
enrollment advisors and determine what the relationship is between salary adjustments and the
movement of incentive and non-incentive points on evaluations,” concluded:

                  “The non-incentive points did appear to affect the salary adjustments.”32

        Thus, after collecting and analyzing extensive data, the auditors concluded that, in actual
practice, the University’s enrollment advisors’ salaries were in fact not based solely on numbers
of students recruited, and were in fact based in part on qualitative, non-incentive factors. The
applicable regulation specifically declares that to be an acceptable compensation practice. The
University respectfully submits that should be the end of the matter with respect to
compensation.

       Although concluding that Ashford’s compensation plan provided for adjustments not
based solely on recruiting success, the draft audit nonetheless states that the auditors could not
determine whether the plan complied with a regulatory safe harbor because of certain
documentation they expected to find, but did not. It recommends that FSA require the
University to produce such documentation, and, if it cannot do so, that it be sanctioned.



31
   Emphasis added. A copy of the OIG audit work papers summarizing their analysis and ending with the above
conclusion is submitted herewith as Exhibit 1-1. It is important to note that the conclusion was based on an analysis
of (a) actual salaries as determined by the University based on the matrix versus (b) the quantitative and non-
quantitative (or, in the draft report’s parlance, incentive and non-incentive) factors. The auditors’ conclusion thus
applies to the plan as actually implemented, not simply to its design.
32
  A copy of this study by the OIG auditors is attached as Exhibit 1-2. This study, too, was based on actual salary
determinations, and therefore the conclusion applies to the plan as it was implemented in practice, not just to how it
was designed.
Final Report
ED-OIG/A05I0014                                                                                  Page 64 of 155

       The draft report therefore concludes, in essence, that although the auditors could not
determine that the University violated the statute (and, indeed, concluded after sixteen months of
field work and nine months of analysis, that it appears to be in compliance), the University
nonetheless should be required to submit more documents and prove its innocence.

       The University disagrees with the finding and recommendation regarding documentation,
and with many of the details relied upon in the draft report to support the finding.

        First, the compensation plan includes no bonus, commission or other incentive payment
for plan participants. It therefore does not come within the coverage the Higher Education Act’s
incentive compensation statute, at 20 U.S.C. 1094(a)(20), and there is no justification for shifting
the burden of proof to the University to show compliance with a safe harbor.

        Second, the University, as a matter of fact, did satisfy the applicable safe harbor because
it did not base salary adjustments of enrollment advisors solely on the number of students
recruited, and it maintains records to demonstrate that conclusion. In fact, as evidenced by
Exhibit 1-1 and 1-2, the auditors concluded that the University’s salary adjustments appear to
satisfy the safe harbor based on an analysis of a sample of performance evaluations selected by
the auditors. That conclusion is reinforced by the analysis of an even larger sample of
evaluations, performed by the University’s independent economic and statistical expert,
Constantijn W.A. Panis, Ph.D.33

        Third, there is no requirement that an institution maintain multiple levels of personnel
records to prove a negative, i.e., that its compensation of enrollment counselors did not violate
the safe harbor. Rather, consistent with constitutional notions of fundamental fairness and due
process, the burden is on the government to establish a violation. See, e.g., 34 C.F.R., Part 668,
Subpart G. The draft audit report does not even allege a violation, and the auditors concluded
that the plan was compliant.

        Fourth, even before learning of the auditors’ concerns regarding compensation, the
University had instituted procedures to remove some of the discretion of managers in their
calculations of salaries in order to provide that all salary adjustments are made completely
uniformly, and to ensure that the plan is implemented as it is designed.




33
  A copy of Dr. Panis’s report, Compensation of Enrollment Advisors at Ashford University, is attached as Exhibit
1-3. His discussion of the expanded sample is in the section titled “Second Analysis File” at pages 14-16 of his
report.
Final Report
ED-OIG/A05I0014                                                                                      Page 65 of 155

         C. Discussion

             1. The University did not make bonus, commission, or other incentive payments
                based directly or indirectly on success in securing enrollments

         The draft audit report finds that the University’s compensation plan made “incentive
payments” to enrollment advisors because salaries are determined, in part, on success in securing
enrollments.34 On that basis, the draft report would shift the burden to the University to prove
that its compensation complies with the provisions of the regulatory safe harbor permitting salary
adjustments based on job performance, provided there are no more than two adjustments per year
and that they are not based solely on the number of students recruited.

       The finding is erroneous and the burden-switching conclusion falls for that reason alone.
The plain statutory language, the contemporaneous expression of Congressional intent in a
Conference Committee Report, and the applicable DOE regulation all make clear that salary
payments based in part on success in securing enrollments do not constitute a prohibited “bonus,
commission or other incentive payment.”

                  a. The plain language of the statute

         The Higher Education Act provides that a participating institution

         will not provide any commission, bonus, or other incentive payment based directly or
         indirectly on success in securing enrollments or financial aid to any persons or entities
         engaged in any student recruiting or admission activities….

20 U.S.C. § 1094(a)(20).

        By its plain language, the prohibition does not apply to all forms of compensation. It
applies only to compensation in the form of a “commission, bonus, or other incentive payment.”
The use of "other" before "incentive payment" means that the statute forbids only incentive
payments in the nature of a bonus or commission.35

34
   The draft argues that, to achieve an annual salary larger than $27,474, an enrollment advisor must earn more than
26 points on the University’s 100-point scale, and that cannot be done without scoring at least two points from
among the categories that are based directly or indirectly on success in securing enrollments. It therefore asserts that
the paying of salary amounts to an “incentive payment” in the nature of a commission or bonus. See Draft Audit
Report, at pp. 6 - 7 and Enclosure 1 (hereinafter cites as “DAR at __”).
35
   Hall Street Assoc. v. Mattel, Inc., 552 U.S. 576, 586 (2008) (“Under [the rule of ejusdem generis], when a statute
sets out a series of specific items ending with a general term, that general term is confined to covering subjects
comparable to the specifics it follows.”); Dolan v. Postal Serv., 546 U.S. 481, 487-90 (2006) (rejecting the
Government’s argument that the phrase “negligent transmission” in the clause “loss, miscarriage, or negligent
transmission of letters or postal matter” applied to “all negligence in the course of mail delivery,” rather the Court
held that “Congress expressed the intent to immunize only a subset of postal wrongdoing,” and thus, the phrase was
limited to the meaning of the proceeding words “loss” and “miscarriage” which addressed only the timely delivery
of the mail to the correct address); Wash. State Dep’t of Soc. & Health Servs. v. Guardianship Estate of Keffeler,
537 U.S. 371, 384-85 (2003) (concluding that under the statutory cannon of construction ejusdem generis, the phrase
“other legal process” within the clause “execution, levy, attachment, garnishment, or other legal process” must be
limited to legal processes of the same nature as the specific items also listed in the clause).
Final Report
ED-OIG/A05I0014                                                                     Page 66 of 155

        A commission is “a fee paid to an agent or employee for transacting a piece of business
or performing a service; especially: a percentage of the money received from a total paid to the
agent responsible for the business.” A bonus is “money or an equivalent given in addition to an
employee's usual compensation.” A commission is essentially payment for “piece work,” i.e.,
for single transactions. A bonus is a one-time payment. Salary, by contrast, means “fixed
compensation paid regularly for services.” http://www.merriam-
webster.com/dictionary/commission, /bonus, and /salary.

      Because the statute, by its plain language, applies to compensation in the nature of a
commission or bonus, and because the University’s plan indisputably is a salary plan, the salary
payments are not an incentive payment prohibited by the statute.

               b. The expressly stated Congressional intent

        The statute’s plain language is reinforced by a specific, contemporaneous Congressional
expression of intent. According to the report of the Conference Committee that reported the
statute as enacted in 1992:

              The conferees wish to clarify, however, that use of the term "indirectly" does not
       imply that schools cannot base employee salaries on merit. It does imply that such
       compensation cannot solely be a function of the number of students recruited, admitted,
       enrolled or awarded financial aid.

H.R. Conf. Rep No. 102-630, at 499 (1992).

         It is therefore beyond dispute that, since even if salary adjustments were covered by the
statute, they are permissible so long as they are not based solely on the number of students
recruited. It necessarily follows that salary adjustments are permissible if they are based in part
on factors not based on the number of students recruited. The draft audit report acknowledges
that 26 of the possible 100 points are not based on success in securing enrollments. The
auditors’ work papers acknowledge that actual salaries are determined, in part, by qualitative,
non-incentive factors. It follows that the plan, as designed and as implemented, in not prohibited
by the statute.

               c. DOE’s acknowledgement of the statute’s meaning

        The Department of Education clearly recognized the important distinction between
incentive payments and fixed salary on November 1, 2002, when it published final regulations
implementing the statute and establishing twelve safe harbors that “provide institutions with
specific, concrete examples of payments they can make that do not violate the statutory
provision.” 67 Fed. Reg. 51723 (Aug. 8, 2002).

        The Department divided the twelve safe harbors into two categories. “The first category
relates to whether a particular compensation payment is an incentive payment.” 67 Fed. Reg.
Final Report
ED-OIG/A05I0014                                                                    Page 67 of 155

67054 (Nov. 1, 2001). In the preamble language accompanying the final rule, the Secretary
stressed the distinction that fixed salary is not a commission, bonus or other incentive payment:

               The first category relates to whether a particular compensation payment is an
       incentive payment. The first safe harbor addresses this category by describing the
       conditions under which an institution may pay compensation without that compensation
       being considered as an incentive payment.

67 Fed.Reg. 67054 (November 1, 2002).

       The first safe harbor specifically permits:

               The payment of fixed compensation, such as a fixed annual salary or a
       fixed hourly wage, as long as that compensation is not adjusted up or down more
       than twice during any twelve month period, and any adjustment is not based
       solely on the number of students recruited, admitted, enrolled, or awarded
       financial aid.

34 C.F.R. § 668.14(b)(22)(ii)(A)(emphasis added). The limit of two salary adjustments per year
was intended to distinguish between a fixed salary and variable compensation. DOE’s judgment
was that if salary were adjusted too frequently, it would no longer be fixed compensation and
would come within the statutory prohibition as a “commission, bonus, or other incentive
payment.” DOE drew the line at two adjustments. So long as no more than two adjustments are
made in each twelve-month period, the adjustments are the payment of salary, not incentive
payments. It is undisputed that the University’s salary plan provided for only two adjustments
per year. It follows that it is a salary plan, not an incentive payment plan.

        The regulation thus reinforces the plain meaning of the statute, and the contemporaneous
expression of Congressional intent, that salary adjustments based in part on success in securing
enrollments are not an incentive payment within the meaning of the Higher Education Act. The
draft audit report thus is erroneous in concluding that, because salary adjustments are based in
part on success in securing enrollments, they are incentive payments covered by the statute.

           2. The burden is on the government to establish a violation, not on the
              University to establish the lack of a violation

         As shown in the previous section, the attempt to switch the burden of proof to the
University fails because its premise fails: the University adjusted salary no more than twice per
year; it did not make incentive payments.

        The attempt to switch the burden also runs contrary to well-settled notions of
fundamental fairness and due process, which hold generally that the burden is on the government
to establish a violation. The University recognizes that, in the civil context, the courts have
Final Report
ED-OIG/A05I0014                                                                                    Page 68 of 155

permitted burden-shifting where Congress so requires by statute. 36 Here, however, Congress has
not shifted the burden to institutions. Indeed, the attempt at burden-switching runs counter to the
very same Department of Education regulation invoked by the draft audit report in its
recommendation. Tentative Finding 1 recommends that FSA initiate an action to fine the
University, or to limit, suspend or terminate its eligibility to participate in the Federal Student
Aid programs, if it fails to produce further documentation proving its innocence.

        Fine, limitation, suspension and termination proceedings are governed by Department
regulations appearing at Subpart G of 34 C.F.R. 668. Among other things, the regulations
require:

                 that “a designated department official” (i.e., a person with authority within FSA)
                  initiate such a proceeding;

                 that the institution is entitled to “a hearing [that] is an orderly presentation of
                  arguments and evidence conducted by a hearing official;” and

                 that FSA “has the burden of persuasion in any fine, suspension, limitation or
                  termination proceeding under this subpart.”

34 C.F.R. § 668.88(a) and(c)(2) (2009)(emphasis added).

        The draft audit report acknowledges that OIG could not determine that the University
violated the regulation. The auditors’ work papers conclude that salaries were not based solely
on recruiting success and were based in part on qualitative, non-incentive job factors. On that
basis, there can be no successful limitation, suspension, termination or fine action against the
University.

       The University therefore respectfully submits that the draft finding and recommendation
should not be included in the final audit determination.

             3. The University did not base salary solely on the number of students
                recruited, admitted, enrolled or awarded financial aid

        As set forth in Section III.D, above, and as is apparent from a fair reading of the draft
audit report, the draft audit report contains no finding that the University’s salary plan violated
the safe harbor. To that extent, the University concurs with the finding.

       It is important to note that the auditors’ failure to find a violation of the incentive
compensation statute followed sixteen months of field work, including numerous interviews of
or enrollment advisors, their supervisors, and upper management, as well as review of numerous
personnel files and compensation records. Indeed, as demonstrated in this section, the clear
evidence shows, and analyses conducted by the auditors reflected in their work papers but not in
36
  See, e.g., United States v. $250,000 In U.S. Currency, 808 F.2d 895 (1st Cir.1987) (Congress may generally alter
the traditional allocation of the burden of proof without compromising due process unless the statute is criminal in
nature.)
Final Report
ED-OIG/A05I0014                                                                       Page 69 of 155

the draft audit report, the University’s salary adjustments were not based solely on the number of
students recruited, and therefore complied with the safe harbor.

           The first safe harbor specifically permits:

                   The payment of fixed compensation, such as a fixed annual salary or a
           fixed hourly wage, as long as that compensation is not adjusted up or down more
           than twice during any twelve month period, and any adjustment is not based
           solely on the number of students recruited, admitted, enrolled, or awarded
           financial aid.

34 C.F.R. § 668.14(b)(22)(ii)(A)(emphasis added).

       During the notice and comment portion of the safe harbor rulemaking procedure, the
Secretary was asked to provide guidance as to what was meant by the term “solely:”

                   Many commenters noted that salary adjustments could not be based solely
           on the number of students recruited, admitted, enrolled, or awarded financial aid,
           and asked whether the term ‘‘solely’’ was being used in its dictionary definition.

67 Fed. Reg. 67055 (Nov. 1, 2001).

       The Secretary responded, “In this safe harbor, the word ‘solely’ is being used in its
dictionary definition.” Id.

        The dictionary definition is: “1. without another: singly. 2. to the exclusion of all else
http://www.merriam-webster.com/dictionary/solely

        The draft audit report specifically acknowledges that 26 of the 100 points upon which
salary adjustments are made are not based on the number of students recruited, admitted,
enrolled or awarded financial aid.37 It therefore is indisputable that, as designed, the salary
adjustment does not base salary adjustments solely on the number of students, recruited,
admitter, enrolled or awarded financial aid.

       The question therefore becomes whether the plan, as implemented, bases salary
adjustments solely on the number of students recruited. The auditors answered that question in
the negative.

        The auditors performed an analysis “to determine the relationship between changes in
incentive and non-incentive points with changes in salaries.”38 As the work paper makes clear,
they were analyzing actual performance evaluations and salary determinations based on those
evaluations. The auditors found that there was a stronger correlation between quantitative
performance and salary than between qualitative performance and salary, there was nonetheless a
correlation between the qualitative points and salary:
37
     See DAR at pp. 6 – 7 and Enclosure 1.
38
     Exhibit 1-1.
Final Report
ED-OIG/A05I0014                                                                                      Page 70 of 155

                 Based on the analysis performed, we determined that there appears to be a much
         stronger correlation between the changes in incentive points with the changes in salary,
         but the non-incentive points still have an effect on the salary adjustments. Ashford
         University’s evaluation matrix for enrollment advisors is designed to give incentive
         points more influence on salary calculation with non-incentive points having a lesser
         effect on salaries. Therefore, if Ashford University used the matrix to calculate
         enrollment advisor salaries, it would likely be in compliance with the Safe Harbor Rule
         as what drives the salary adjustments does not appear to be based solely on securing
         enrollments (incentives).39

The conclusion was based on actual salary calculations. Even if managers were exercising
discretion given them by the matrix in how they determined actual salary numbers, the fact
remains that the salaries they calculated were not based solely on the quantitative factors, but
were based in part on the qualitative factors. As such, the salary determinations satisfy law and
regulation.

        The OIG work papers contain a second, more detailed analysis of the University’s salary,
submitted herewith as Exhibit 1-2. The purpose was “to analyze Ashford’s salary calculations
for enrollment advisors and determine what the relationship is between salary adjustments and
the movement of incentive and non-incentive points on evaluations.” The study concluded:

         “The non-incentive points did appear to affect the salary adjustments.”40

        It is undisputed that the plan as designed, i.e. the matrix, based salary in part on the
qualitative, non-incentive factors. The auditors acknowledged in their work papers, that actual
salary adjustments made pursuant to the plan were based in part on the qualitative, non-incentive
points. It follows that the University’s compensation of its enrollment advisors satisfies the law
and regulations

         That conclusion is reinforced by the report of the University’s independent expert,
Constantijn W.A Panis, Ph.D., who conducted a statistical analysis similar to that of the OIG
auditors, but expanded it to include a much larger sample than the OIG’s, and concluded among
other things that factors other than those based on the number of students recruited were a
statistically significant determinant of salary. 41

        Dr. Panis’s curriculum vitae is contained at Attachment C to his report. He has a Ph.D. in
economics from the University of Southern California, and a law degree and an M.A. in business
economics from the University of Groningen, Netherlands. Dr. Panis is an expert in labor
markets and econometric modeling. Prior to joining Advanced Analytical Consulting, Dr. Panis
led the Economic and Statistical Consulting group of Deloitte & Touche in the Pacific

39
   Exhibit 1-1.
40
   Exhibit 1-2.
41
   Exhibit 1-3, Opinion 2 on p. 2; the discussions in the First Analysis section under the title “Qualitative Criteria
Co-Determined Salary Adjustments to a Greater Degree than as Designed, at pp. 4-5, and the title “Salary
Adjustments Were Not Solely Based on Quantitative Ratings,” at pp. 7-13; and the entire discussion in the Second
Analysis section at pp. 14-16s.
Final Report
ED-OIG/A05I0014                                                                        Page 71 of 155

Southwest. Before that, he was a senior economist at the RAND Corporation, where his research
on employment patterns, wages, and pension entitlements was funded by the U.S. Department of
Labor, the Social Security Administration, and other federal agencies. He served on the faculty
of the University of Southern California and the University of California at Irvine, teaching
undergraduate and graduate statistics and economics courses.

        Dr. Panis analyzed performance evaluation and salary adjustments for the same set of
enrollment advisors (comprising 12 enrollment advisors with 27 evaluations among them) as was
selected by the auditors. In addition, in order to test his conclusions against a larger sample, Dr.
Panis requested and was provided a set of all University’s enrollment advisors over the relevant
time period, from which he selected a random sample containing 119 evaluations. As his report
also indicates, the larger sample yielded results that are “highly statistically significant” with
respect to his conclusions as to the smaller sample.42

        Dr. Panis also analyzed correlations between (1) the difference between (a) actual salary
for each Enrollment Advisor as calculated by the University’s Enrollment Managers and (b)
salary as the linear interpolation method used by the auditors and (2) qualitative and
quantitative performance.

       Dr. Panis’s report speaks for itself, so we simply summarize here some of its key
findings:

                   o In practice, University evaluators tend to weight the qualitative factors more
                     highly than the quantitative factors. 43

                   o “In conclusion, my analysis of salary increases and of new salary levels found
                     that quantitative ratings cannot have been the sole determinant of salary
                     adjustments. This finding applies to salary increases and new salary levels, in
                     period 0307 and 0407, and for Matrices M1 and M2.”44

                   o In practice, the observed patterns of qualitative and quantitative evaluations
                     are inconsistent with a hypothesis that managers may have manipulated the
                     qualitative data in order to reward higher quantitative performers. This
                     conclusion is shown through analysis of numerous counterexamples, through
                     visual analysis of plots of quantitative ratings versus qualitative ratings,
                     through visual analysis of salaries and salary increases versus quantitative and
                     qualitative ratings, and by analysis of the variation of manager evaluations in
                     the eight components that comprise a qualitative rating.45

                   o In practice, the qualitative factors, without regard to the quantitative factors,
                     are a statistically significant determinative factor in enrollment advisor salary
                     adjustments. That is, enrollment advisor compensation is not based solely on

42
   Exhibit 1-3 at 16.
43
   Exhibit 1-3 at 4-5.
44
   Exhibit 1-3 at 12.
45
   Exhibit 1-3 at 5-7.
Final Report
ED-OIG/A05I0014                                                                                         Page 72 of 155

                       the number of students recruited, admitted, enrolled or awarded financial aid,
                       and it is based in part on the qualitative, non-incentive performance factors.46

                  o To the extent Enrollment Mangers varied from the matrix or used their
                    discretion given by the matrix to determine salary other than based upon the
                    linear interpolation method used in the auditors’ report, that variation, to a
                    statistically significant extent, did not reward quantitative (i.e., recruiting
                    related) performance. 47

        Accordingly the University’s salary plan, as defined and as implemented in practice, falls
clearly within the letter and spirit of the Department’s first safe harbor because it provides for
salary adjustments that are not based solely on the number of students recruited, admitted,
enrolled, or awarded financial aid. 48

              4. The University complies with applicable record-keeping regulations

         The draft audit report cites a regulation requiring that an institution

         shall establish and maintain, on a current basis, any application for title IV, HEA program
         funds and program records that document . . . [i]ts administration of the title IV, HEA
         programs….in accordance with all applicable requirements . . . .”

34 C.F.R. § 668.24(a)(3).49

       The draft audit report cites an alleged failure to maintain records in three areas in
determining salary adjustments: basis for the quantitative point awards, basis for the qualitative
point awards, and formula to translate total points into new salary.

         We discuss each of these in turn.

                  a. Quantitative performance factors

       The draft audit report acknowledges that certain data relied upon in performance
evaluations – net starts, gross starts, and applications – are entered and maintained in the
University’s CampusVue data base system.50 It further states that CampusVue records are static


46
   Exhibit 1-3 at 7-13, and 14-16.
47
   Exhibit 1-3 at 16-17.
48
   It is important to note that the regulation also provides that the safe harbors are not an exclusive list of practices
that either (1) do not constitute incentive payments, or (2) do constitute incentive payments but are deemed by the
Department as not violating the statute and regulation. Immediately preceding the list of 12 safe harbors, the
regulation provides: “Activities and arrangements that an institution may carry out without violating the provisions
of paragraph (b)(22)(i) of this section include, but are not limited to….” 34 C.F.R. 668.14(b)(22)(ii)(July 1,
2009)(emphasis added). Accordingly, even if, for the sake of argument, the University’s plan were not within the
precise parameters of the safe harbor, that would not mean that it violates the ban against incentive payments.
49
   DAR at p. 10.
50
   DAR at 8.
Final Report
ED-OIG/A05I0014                                                                                    Page 73 of 155

and remain available.51 The auditors were provided full access to the CampusVue system, and
had the opportunity to question the basis for any of the documentation contained in the employee
evaluation files.

        The draft audit report also acknowledges that other quantitative data used in the
evaluations – outbound calls, leads, contacts, applications and referrals – are entered and
maintained for a period of time on the University’s REAP data base system.52 It complains,
however, that the REAP data are time sensitive and can change over time – e.g., applications
may convert to starts (gross starts), starts may convert to starts that complete at least one course
(net starts).53

        The draft audit report complains that the University did not take snapshots of the data
base information – CampusVue and REAP – used in evaluating each advisor.54 That is the sole
basis cited for the alleged failure to keep records supporting the quantitative evaluations. Yet,
the draft report also acknowledges, and it undeniably is the case, that the data from the data base
systems is recorded on the completed evaluation matrices for each enrollment advisor, and that
those matrices are maintained in the employees’ permanent record, are available, and were
reviewed by the auditors.55 We believe it is standard practice in numerous organizations,
perhaps including governmental agencies, for raw employee data to be compiled over the course
of an evaluation period, to be transferred to evaluation forms, and for the raw data to be
discarded after the review. The back-up data for the evaluation is in the evaluation forms. The
evaluation forms are the snapshot. Essentially, the report would require permanent retention of
the back-up for the back-up. Here, it is undisputed that the University maintains records, and
those records were made available to the auditors, showing the actual data on which the
quantitative evaluations were based. It also is true that much of the back-up for the back-up, i.e.
currently existing CampusVue and REAP data, was unchanged since the evaluations and made
available to the auditors.

      Accordingly, it simply is not the case that the University failed to maintain records
showing the data on which the quantitative evaluations were based.

                  b. Qualitative Performance Factors

        With respect to the eight qualitative performance factors, the draft audit report
acknowledges that the University provided evaluation matrices that contained descriptions of the
performance requirements necessary to obtain an evaluation for each ranking between one and
five. Thus, records describing each of the criteria, and the requirements for each score within
each of the criteria, were maintained and provided to the auditors. The records reflecting the
results of the evaluations for each enrollment advisor also were maintained and provided. Thus,
the University maintained and provided records that documented each evaluation criterion.

51
   Id. In fact, CampusVue data can be updated over time as students progress in their education graduate, and so is
not necessarily static as to all fields.
52
   Id.
53
   Id.
54
   Id.
55
   Id.
Final Report
ED-OIG/A05I0014                                                                                   Page 74 of 155

Additionally, as the draft audit report acknowledges, the forms contained fields where the
evaluators could supplement the record by giving narrative descriptions supporting the score for
each factor, and it was not unusual for the evaluators to complete those fields, thereby
“provid[ing] some insight into the judgment management used in evaluating the enrollment
advisors for the qualitative categories.”56

       So, again, it simply is not accurate to say that the University failed to maintain records
substantiating the managers’ evaluation of performance in the qualitative categories.

        Finally, we respectfully would direct attention to the portions of Dr. Panis’s report where
he investigates the correlations between quantitative and qualitative scores, and the variation in
scores for the various qualitative, non-incentive factors, and concludes there is no evidence to
suggest that the qualitative data was ignored or manipulated in a way to reward successful
recruiting performance. So, even if there were a lack of documentation, which there isn’t, the
fact remains that there is no evidence qualitative scores were ignored or manipulated.

                 c. Calculation of Salaries

       Finally, the draft audit report complains that the compensation plan did not dictate a
formula to be used by managers to convert the total score – qualitative plus quantitative – into an
adjusted salary.

        Significantly, the draft audit report does not find that salaries were calculated so as to
undermine the salary plan’s design of a 76%/24% division between dependence on factors based
on numbers of students recruited (quantitative) and factors not based on numbers of students
recruited (qualitative). Nor does the draft audit report find that enrollment managers calculated
salaries in violation of the plan. Nor does the draft report find that the salaries, as actually
calculated, were based solely on the number of students recruited. Rather, the draft audit report
simply says that some performance evaluations resulted in salaries that vary from how two
employees told the OIG they calculated salaries.

        The simple fact is that the regulation does not require that institutions use a formula to
calculate salary. It simply requires that the calculation not be based solely on the number of
students recruited. Here, as the University made clear to the auditors, managers had some
discretion, within the parameters of the plan, in translating total points into an actual salary
adjustment.

        The draft audit report contains an attachment comparing (a) total points received, (b)
actual salary received, and (c) what the auditors think the salary should have been, based on what
two people told them.

      The University’s plan, during the time reviewed by the auditors, did not specify how
managers should determine salary within each range.57 There are a number of ways one could

56
  DAR at 8 – 9.
57
  After the audit commenced, but before the exit interview or receipt of the draft audit report, the University
instituted new procedures that, among other things, removed discretion from managers with respect to the translation
Final Report
ED-OIG/A05I0014                                                                                   Page 75 of 155

translate the points to a salary, within the discretion allowed managers, consistent with the
University’s salary plan. One of those is the ways used by OIG in its analysis. As shown in Dr.
Panis’s report, the difference between the salary as calculated by the OIG methodology and the
actual salary is not a function of quantitative score. In fact, it is, to a statistically significant
degree, the opposite. To the extent managers exercised discretion to vary from a straight linear
interpolation of points to salary, they did not reward quantitative, recruiting-based performance.
In fact his analysis found exactly the opposite.

                “The cloud of points and its fitted line demonstrate a negative relationship: the
        higher the qualitative rating, the smaller or more negative the difference between actual
        and expected salary. In other words given a certain total points rating, supervisors were
        more generous toward enrollment advisors with lower quantitative ratings than to
        advisors with higher quantitative ratings….The negative relationship is statistically
        significant.” 58

There is accordingly no basis to conclude that University employees were manipulating the
system to reward quantitative performance and ignore qualitative performance.

                 d. Regulations

        Finally, DOE regulations do not require that institutions maintain back-up documentation
for the back-up documentation for their salary determinations.

         As noted in Section III.C.5.b, above, the record-keeping regulation cited in the Draft
Audit Report requires that “title IV, HEA program records” be maintained relating to the
institution’s “administration of the title IV, HEA programs.”

        The title IV program records required to be maintained are defined thus in the regulation:

                 (c) Required records. (1) The records that an institution must maintain in order to
                 comply with the provisions of this section include but are not limited to—

                 (i) The Student Aid Report (SAR) or Institutional Student Information Record
                 (ISIR) used to determine eligibility for title IV, HEA program funds;

                 (ii) Application data submitted to the Secretary, lender, or guaranty agency by the
                 institution on behalf of the student or parent;

                 (iii) Documentation of each student's or parent borrower's eligibility for title IV,
                 HEA program funds;

of performance evaluation points into salary adjustments. Since then, points have translated to salary in the same
manner as described to OIG in the interviews referenced in the draft audit report. In addition, enrollment managers
now are required to complete and return to Human Resources management their qualitative evaluations for
employees before being provided the quantitative data on the basis of which the quantitative score is decided. So
the managers are not aware of the quantitative performance when they complete the qualitative evaluation.
58
   Exhibit 1-3, page 17.
Final Report
ED-OIG/A05I0014                                                                        Page 76 of 155

               (iv) Documentation relating to each student's or parent borrower's receipt of title
               IV, HEA program funds, including but not limited to documentation of—

               (A) The amount of the grant, loan, or FWS award; its payment period; its loan
               period, if appropriate; and the calculations used to determine the amount of the
               grant, loan, or FWS award;

               (B) The date and amount of each disbursement or delivery of grant or loan funds,
               and the date and amount of each payment of FWS wages;

               (C) The amount, date, and basis of the institution's calculation of any refunds or
               overpayments due to or on behalf of the student, or the treatment of title IV, HEA
               program funds when a student withdraws; and

               (D) The payment of any overpayment or the return of any title IV, HEA program
               funds to the title IV, HEA program fund, a lender, or the Secretary, as
               appropriate;

               (v) Documentation of and information collected at any initial or exit loan
               counseling required by applicable program regulations;

               (vi) Reports and forms used by the institution in its participation in a title IV,
               HEA program, and any records needed to verify data that appear in those reports
               and forms; and

               (vii) Documentation supporting the institution's calculations of its completion or
               graduation rates under §§668.46 and 668.49.

               (2) In addition to the records required under this part—

               (i) Participants in the Federal Perkins Loan Program shall follow procedures
               established in 34 CFR 674.19 for documentation of repayment history for that
               program;

               (ii) Participants in the FWS Program shall follow procedures established in 34
               CFR 675.19 for documentation of work, earnings, and payroll transactions for that
               program; and

               (iii) Participants in the FFEL Program shall follow procedures established in 34
               CFR 682.610 for documentation of additional loan record requirements for that
               program.

34 C.F.R. 668.23(c)(2009).

         Although the above list is non-exclusive, it is quite lengthy and detailed. It is instructive
that all of the records apply to the administration of the Federal Student Aid programs. None of
Final Report
ED-OIG/A05I0014                                                                       Page 77 of 155

them is remotely related to detailed personnel and productivity records to back up evaluation
records that already include the productivity and qualitative judgment information on which the
evaluations were based.

        Accordingly, the University was under no regulatory obligation to maintain the sort of
detailed personnel records as suggested in the draft audit report, and, at any rate, that University
did in fact maintain records supporting the evaluation reports and the results of the salary
calculations.

        Finally, we respectfully point out that the entire issue of documentation is a red herring.
It is undisputed by the auditors, and reinforced by Dr. Panis’s report, that salaries of enrollment
advisors are not based solely on the number of students recruited, and that salaries are based in
part on qualitative, non-incentive factors. Both in design and in practice, the University’s plan
complies with the letter and spirit of the Higher Education Act and the Department’s regulations.

       D. Conclusion

        For the above reasons, the University disagrees with the finding. The University has
maintained records showing the bases for the semi-annual salary adjustments made in the case of
its enrollment advisors. The evaluations and adjustments are made no more than twice annually
and are not based solely on the number of students recruited, admitted, enrolled or awarded
financial aid.

        Because of its disagreement with the finding, the University also disagrees with the
recommendation, viz., that FSA require the University to submit documentation demonstrating
its compliance with the safe harbor and, if it fails to do so, that corrective action be instituted.
The University respectfully submits that it already has submitted such documentation, the OIG
has reviewed it, and the OIG has not found there to be a violations. In fact, the OIG auditors
have determined that the non-recruiting factors are a determinant, albeit not the only one, of
salary. That is what the law requires, and that should be the end of the matter.

IV.    Draft Finding 2: Calculation of Return-to-Title-IV Payments

       A. Introduction

       The University respectfully disagrees with each of the three categories of alleged
noncompliance described in draft finding 2. The draft finding contends that the University
miscalculated certain return calculations for one of the following reasons:

          AU purportedly used an incorrect last date of attendance at an academically related
           activity as the withdrawal date;

          AU purportedly did not revise the payment period end date for certain students who
           did not complete their credits according to the student’s schedule;
Final Report
ED-OIG/A05I0014                                                                        Page 78 of 155

              AU purportedly incorrectly projected the tuition charges that would have been
               charged to the students if they had completed the credits for the semester.

       Our response demonstrates that AU correctly calculated the cited return calculations in
each of these three categories with one nominal exception totaling $101.25. We address each
category separately below. We then address each of the finding’s recommendations at the
conclusion of this response.

        Before explaining the basis for our disagreement with draft finding 2, we explain our
disagreement with the draft finding’s unsupported speculation regarding the purported harm to
the Title IV programs associated with this draft finding. Specifically, the draft finding contends
that AU’s return calculations resulted in AU retaining $35,989 more in Title IV funds than
permitted by the governing regulation. The draft finding then attempts to estimate the total
amount of excess Title IV funds AU may have retained by speculating that this amount might
equal somewhere between $1.2 million and $2.3 million across the entire population of students
for the 2006-2007 award year. The draft finding’s speculation is incorrect and inappropriate for
inclusion in the audit report for the following reasons:

              AU’s return calculations are in fact more conservative, and result in the
               University returning more Title IV funds to the Title IV programs, than
               required by the governing regulation. Draft finding 2 concedes that the University
               is not required to take attendance. Draft finding 2 also concedes that the governing
               regulation authorizes such institutions to use the midpoint of the payment period as
               the withdrawal date for students who withdraw without notifying the University. If
               AU used the midpoint as the withdrawal date, AU would be entitled to retain
               substantially more Title IV funds than it typically retains.59 Therefore, the draft
               finding’s conclusion that the Title IV programs were harmed by AU’s calculations is
               incorrect. AU’s calculations were more generous to the Title IV programs and
               resulted in AU returning more Title IV funds than required by DOE regulations.

              The audit workpapers reveal that the auditors actually used the midpoint
               analysis to recalculate returns for certain students, but used a methodology more
               aggressive than required by law for all other students. This arbitrary and selective
               use of the midpoint analysis distorted the results of the draft finding’s assessment of
               purported harm to the Title IV programs. In order to calculate the purported harm to
               the Title IV programs, the auditors would have to use the midpoint analysis for all
               students. If the auditors had used the midpoint analysis for all students – not just the
               few it arbitrarily selected – it would have concluded that AU’s calculations resulted in
               larger returns to the Title IV programs than required by law. The draft finding’s
               conclusion that the Title IV programs were harmed by AU’s calculations is incorrect.

              The draft finding is unlawfully and retroactively imposing a rule found not in
               the governing regulations, but in a proposed DOE regulation which is not in
               effect. The DOE has proposed regulations which would require institutions like AU

59
     AU substantiates this conclusion in Section V.B.1 below.
Final Report
ED-OIG/A05I0014                                                                        Page 79 of 155

               to use their attendance records to calculate withdrawal dates instead of using the mid-
               point of the payment period.60 However, these regulations are not final, remain
               subject to notice and comment until a final regulation is published, and, if adopted as
               currently proposed, would not take effect until July 1, 2011. Until that time, an
               institution is only required to return amounts that are at least equal to the amount
               calculated under the current mid-point regulation. While AU did calculate its
               withdrawal dates based on its attendance records (and disagrees with the draft
               finding’s contention that these calculations were incorrect), the law does not require
               AU to refund amounts greater than those required under the mid-point regulation.

              The draft finding’s estimated calculations of improperly retained Title IV funds
               are not only incorrect, but also distorted because they are based on non-random
               file samples. The draft finding did not test files randomly selected from the entire
               universe of AU students. Instead, the auditors drew three samples from two groups
               limited to Title IV recipients who withdrew, had a zero grade point average, or were
               on a leave of absence. These targeted and judgmental samples are not representative
               of AU’s total student population. The alleged error rates and dollar estimates are
               distorted because they do not measure AU’s compliance across its entire student
               population. We respectfully submit that no sanctions or other recommendations
               should be imposed on the basis of erroneous and distorted results derived from non-
               random samples.

              The draft finding’s results are also distorted because they include purported
               discrepancies which, even if correct, would not have changed AU’s calculations
               or would have resulted in AU returning less money to the Title IV programs.
               For example, the draft finding contends that AU incorrectly calculated the withdrawal
               date for 58 students. Yet, the audit workpapers show that the auditors contend that
               AU retained excess Title IV funds for only 37 of the 58 students. In the other 21
               cases, the auditors agreed with the amounts returned by AU or concluded that AU
               returned more money than required by regulation. Consequently, the draft finding’s
               reference to “58” instances of purported noncompliance is inflated and overstates the
               scope of the draft finding. The figures are similarly overstated for the other two
               categories relating to payment period calculations and institutional charge
               calculations.

For the reasons discussed in this response, the draft finding and its recommendations should be
withdrawn in their entirety.

           B. AU Correctly Determined the Last Date of Attendance at an Academically
              Related Activity

       The draft finding contends that AU did not use the correct withdrawal date when it
performed R2T4 calculations for cited students. However, the draft finding incorrectly
recalculates the withdrawal dates for these students based on a methodology which misstates

60
     See Section V.B.5 below.
Final Report
ED-OIG/A05I0014                                                                                   Page 80 of 155

AU’s attendance policy and incorrectly interprets AU attendance records. AU’s calculation of
withdrawal dates complied with – and, in fact, was far more conservative than required by – the
governing regulations.

             1. AU’s methodology for calculating withdrawal dates was more conservative –
                and resulted in larger Title IV refunds – than required by the regulations

        Institutions are required to conduct R2T4 calculations for students who withdraw from
school during a payment period. The R2T4 calculation determines the portion of Title IV funds
earned by the student before withdrawing from school. The institution (and, in some cases, the
student) is required to return the unearned portion of Title IV funds to the Title IV programs.
The amounts of earned and unearned Title IV funds are calculated based on the percentage of the
payment period the student completed before withdrawing from school.61 This percentage is
calculated using the student’s withdrawal date.62 Therefore, the withdrawal date dictates the
amounts of Title IV funds retained by the institution and student and the amount returned to the
Title IV programs.

        The regulations provide separate withdrawal date definitions depending upon whether or
not a school is required to take attendance. For schools required to take attendance, the
withdrawal date is the last date of academic attendance as determined by the institution from its
attendance records. For schools not required to take attendance, the institution generally may
assume that the withdrawal date is the mid-point of the payment period unless the student
provides notice of the student’s intent to withdraw.63 Consequently, the latter withdrawal date
definition generally results in a later withdrawal date and thereby results in the institution and
student earning and retaining a larger percentage of Title IV funds.

       Draft finding 2 concedes that AU is an institution which is not required to take
attendance.64 Under the law described above, AU would be entitled to use the more lenient
withdrawal date definition and to assume that all students who withdrew without notice
completed at least half of their payment periods. However, AU took a more conservative
approach which resulted in the University returning more Title IV funds than required under the
applicable regulation.

        Exhibit 2-1 contains a chart listing each of the 37 students cited in draft finding 2 for a
purportedly incorrect last date of attendance and for which the finding contends AU retained
excess Title IV funds.65 The chart also includes the results of a separate R2T4 calculation for
each student using 1) AU’s LDA, 2) draft finding 2’s LDA, and 3) the midpoint. The chart
shows that the midpoint calculation would have resulted in a later LDA for all but 9 of the 37
cited students. Moreover, the regulations would have allowed AU to use a later LDA beyond the
midpoint for each of these 9 students because, as shown on the chart, AU documented attendance

61
   34 C.F.R. § 668.22(e).
62
   34 C.F.R. § 668.22(f).
63
   34 C.F.R. § 668.22(c).
64
   See Draft Audit Report at 11.
65
   Draft finding 2 alleges that AU miscalculated LDAs for 58 students. Draft finding 2 does not contend that
additional funds are owed for 21 students. This leaves 37 students at issue.
Final Report
ED-OIG/A05I0014                                                                                      Page 81 of 155

beyond the midpoint for each of the 9 students.66 See 34 C.F.R. § 668.22(c)(3). Consequently,
the chart shows that the midpoint calculation methodology would have resulted in less Title IV
funds returned to the Title IV Programs.67 The chart confirms that AU’s withdrawal date
calculations did not harm the Title IV Programs and, in fact, yielded larger refunds to the Title
IV Programs than required by law.68

             2. The draft finding arbitrarily uses the midpoint analysis for a few students,
                but uses a methodology more aggressive than required by law for all other
                students

        Moreover, we note that the auditors used the midpoint to recalculate the withdrawal date
for a few students, but not for other students. See, e.g., Audit Workpaper J-2-3, “Refund,
Attendance & Withdrawal” tab at column CH. For example, in five instances, the auditors stated
“we could not determine the last date of attendance to perform the refund calculation. Because
the school was not required to take attendance, we used 50 percent as the completion rate.” Yet,
in the vast majority of instances, the auditors did not use the midpoint calculation and instead
used its erroneous determinations of the students’ last date of attendance.

         The auditors’ reliance upon the midpoint analysis for some students, but not others, is
arbitrary and contrary to the applicable regulation. The auditors concede in the audit workpapers
that the midpoint is an appropriate withdrawal date measure for institutions not required to take
attendance. The auditors arbitrarily used the midpoint methodology in the few cases it served the
purpose of advocating for a larger return calculation, but failed to use the same methodology in
the vast majority of cases when it would have supported a smaller return. To perform a genuine
comparison between AU’s return calculations and those permitted under the regulations, the
draft finding was required to use the midpoint or a later documented date of attendance for all
students, not just the few it selected. As discussed above, the comparative analysis shows that
the Title IV programs were not harmed by AU’s return calculations.




66
   In some of the 9 cases, AU documented a later LDA which resulted in completion of 60% or more of the payment
period and, therefore, no R2T4 obligation. In the remainder of the 9 cases, AU documented a later LDA which
resulted in completion of between 50% and 60% of the program and an R2T4 obligation equal to that already paid
by AU.
67
   For example, the chart shows that AU originally calculated an R2T4 return of $1,607.87 for student 99729 based
on a last date of attendance of February 5, 2007. The draft finding contends that the return should have been
$1,728.01, based on an LDA of February 2, 2007. If AU had used the midpoint calculation permitted by DOE
regulations, AU would only have returned $356.50 to the Title IV Programs. Similarly, for student 61742, AU
calculated a post-withdrawal disbursement of $486 based on a last date of attendance of June 5, 2006. The draft
finding contends that the post-withdrawal disbursement should have been $143.78 based on an LDA of May 4,
2006. Yet, if AU had used the midpoint calculation permitted by DOE regulations, the post-withdrawal
disbursement would have been $1,012.50, resulting in less Title IV funds returned to the Title IV Programs.
68
   Exhibit 2-2 contains copies of the individual return calculations for each student on the chart in Exhibit 2-1 using
the midpoint methodology for calculating the withdrawal date for each student.
Final Report
ED-OIG/A05I0014                                                                                Page 82 of 155


             3. AU correctly calculated and substantiated its withdrawal date
                determinations

        Although it could have used the more lenient midpoint definition, AU calculated its
withdrawal dates based on the student’s last date of attendance at an academically related
activity. Under the regulation:

        “. . . an institution that is not required to take attendance may use as the student’s
        withdrawal date a student’s last date of attendance at an academically related activity
        provided that the institution documents that the activity is academically related and
        documents the student’s attendance at the activity.”

34 C.F.R. § 668.22(c)(3). The University determined the student’s last date of attendance at an
academically related activity by 1) applying its attendance policy for distance learning students
and 2) monitoring those students’ attendance at certain activities within the University’s learning
site.69 As explained below, 70 the University correctly calculated the withdrawal date for each of
the cited students with one exception totaling $101.25.

                     i. AU applied its attendance policy for distance learning students

         AU’s attendance policy for distance learning students requires their class attendance on at
least two days within a week in order to be counted as present for that week. A student who is
absent for two weeks within a course is dropped from the course. The student’s withdrawal date
under AU’s attendance policy is the last day of the week in which the student attended class for
at least two days during the week.

        This attendance policy recognizes the distinction between traditional on-campus classes
and on-line classes. Unlike traditional on-campus classes which meet at prescribed times and
places each week, AU’s on-line classes permit students to select the days and times on which the
student will attend the course within each weekly period. Therefore, attendance is not measured
on a daily basis, but on whether a student has met the two-day minimum for the week from
Tuesday to Monday. 71

         Lastly, the attendance policy deemed an active student to be in attendance for the
remainder of the course if the student completed and received a grade in the course. This
component of the policy is consistent with DOE guidance which states: “If a student earns a
passing grade in one or more of his or her classes over an entire period, for the class, an
institution is permitted to make the presumption that the student completed the course and thus



69
   See subsections V.B.3.i and ii immediately below.
70
   See subsection V.B.3.iii below.
71
   For students who withdraw without notice and require the R2T4 process to be performed, the LDA will always be
a Monday provided the student logged in twice that week. For students who did not log in twice in a week, the LDA
would be the most recent Monday for which the student met the attendance requirements.
Final Report
ED-OIG/A05I0014                                                                                  Page 83 of 155

completed the period.”72 Accordingly, in certain instances,73 a student established his or her
attendance through the completion of the course if the student was active and completed and
received a grade in the course.

                      ii. AU monitored on-line clicks in its on-line learning environment, but
                          counted only clicks into academically-related activities

        The University determined student dates of attendance by monitoring their attendance via
on-line clicks within the University’s learning site. Consistent with the regulations, the
University counted only academic clicks to make this determination. The regulation defines
“academically-related activity” to include, but not be limited to:

        “an exam, a tutorial, computer-assisted instruction, academic counseling, academic
        advisement, turning in a class assignment or attending a study group that is assigned by
        the institution.”

34 C.F.R. § 668.22(c)(3)(ii). Accordingly, as explained below, the University only considered
academically related clicks for attendance purposes if they resulted in attendance within an
online Learning Block in the student’s program.

         Students access the University by logging into the Ashford learning environment on the
Blackboard system. When a student logs in, the student is directed to his or her online
Homeroom. The Homeroom contains announcements and information of general interest and
lists the course(s) in which the student currently is participating. If the student clicks on a course
in which s/he is enrolled, s/he is directed to the entry screen for that course. At this point, no
“clicks” have been registered for attendance purposes.

       From the course entry screen the student may enter, among other things, the Learning
Blocks representing the activities for each of the weeks of the course, as well as a page
describing the research paper required for the course, where applicable. The first click is
recorded when the student first enters a Learning Block, which is the online analogue to a
resident student entering the classroom.

       Once in the Learning Block, a variety of information and options are displayed to the
student. The information and options include, for example, a list of assignments and tests for the
week and the due date for each; a list of required readings for the week and links to various
readings; a list of the required discussion group activities for the week and a link to open




72
   See 2006-2007 FSA Handbook at 5-60. The guidance also permits an institution to count a failing grade as
evidence that the student completed the class if, for example, the grade is awarded to students who complete the
course, but fail to achieve the course objectives. See id. at 5-61.
73
   For example, student 107104 last attended on July 2, 2007. However, the student also received a grade for his
course. Therefore, AU determined the student’s LDA to be the end of the final week of the course (July 9, 2007)
based on its attendance policy and the student’s successful completion of the course.
Final Report
ED-OIG/A05I0014                                                                    Page 84 of 155

discussion groups; an explanation of written paper assignments required to apply one’s newly
gained understanding of topical matter; and a link to the assessment or test required to
demonstrate mastery of the week’s material.

         Attendance is counted based on students entering and participating in their classroom,
i.e., the Learning Block, since that means students are physically present and actively engaged in
their course-specific materials and participation requirements necessary to complete their
courses. While in the Learning Block, some clicks are accompanied by a recorded posting or
submission, e.g., reading a discussion group thread and posting one or more responses;
submitting an assignment; taking and submitting a test; submitting material pertaining to or
corresponding with one’s instructor regarding one’s research paper or actually submitting the
paper. Other clicks within the Learning Block can result in no submission or posting: e.g.,
reading a discussion group thread but not yet posting a response; accessing the source material
for the reading assignment through a link and reading it on line; accessing the material online
then downloading and studying it at home.

        It is only at this point when the student enters the Learning Block, or classroom, that AU
deems the student in attendance in the classroom and, therefore, in an academically-related
activity. This concept of attendance in an electronic classroom is consistent with the regulatory
definition discussed above which includes, among other things, attendance at computer-assisted
instruction, a tutorial, a study group, or counseling or advisement sessions.

                   iii. The University accurately calculated and substantiated the
                        withdrawal dates for each of the students cited in Finding 2

        Draft finding 2 contends that AU improperly calculated the withdrawal date for 58
students. However, as noted previously, only 37 of these students are at issue because the
auditors concluded that AU did not retain or over-disburse Title IV for the other 21 students even
under the draft finding’s recalculations. Accordingly, while we respectfully disagree with the
draft finding’s recalculations, the return calculations for these 21 students are not at issue.

        Exhibit 2-3 contains a spreadsheet summarizing the data supporting AU’s withdrawal
date calculations for the remaining 37 students cited for withdrawal date calculations in draft
finding 2. Exhibit 2-4 contains select back-up data for each student retained and obtained from
our CampusVue and Blackboard systems which monitor and record on-line attendance activity.
The two Exhibits demonstrate on a student-by-student basis that AU correctly calculated the
withdrawal dates in accordance with its attendance policy, its records of on-line academic
activity, and the governing regulation with one isolated exception.

        For example, Exhibit 2-3 shows that AU calculated a withdrawal date of August 20, 2007
for student 120806. Exhibit 2-4 contains the CampusVue and Blackboard data for this student.
The Blackboard records show a daily listing of on-line click activity for the last course attended
by the student. The records show that student 120806 engaged in on-line click activity at least
Final Report
ED-OIG/A05I0014                                                                                Page 85 of 155

two days per week until the week ending August 20, 2007. During that last week, the student
clicked in three times on August 14 and two times on August 15. The student did attend after
that date as shown by the 11 clicks on August 21, 2007. However, the student did not attend for
a second day during that week. Consequently, AU disregarded the attendance on this day under
its above-described attendance policy. The CampusVue record for this student in Exhibit 2-4
shows under the category “Student Attendance” that AU determined that the student was present
as of August 20, 2007 and absent in subsequent weeks, which is consistent with the Blackboard
data.

       Exhibits 2-3 and 2-4 provide similar data for all of the 37 students at issue in draft
Finding 2. The data confirms that AU correctly calculated and documented the withdrawal dates
for each student consistent with its attendance policy and the regulation with one isolated
exception.74

             4. The auditors’ withdrawal calculations are inconsistent with DOE regulations
                and the University’s policy

         Draft finding 2 contends that AU used a withdrawal date based on a last date of
attendance at an academically related activity which differed from the one recalculated by the
auditors. The draft finding reached these erroneous results based on two assumptions: 1) it used
the last day of attendance as the withdrawal date, rather than the last date of the week in which
the student visited a course website on two separate days in the week and 2) it excluded certain
clicks based on its incorrect assumption that these clicks did not constitute academic activity.
We respectfully disagree with the draft finding because it is inconsistent with DOE regulations
and the University’s attendance policy.

                     i. AU properly calculated the withdrawal date as the last day of the
                        week with two separate days of attendance

       AU correctly calculated the withdrawal as the last date of the week in which a student
attended on at least two separate days. We respectfully disagree with the draft finding’s position
that AU was required to use the last day of attendance within that week for several reasons.

        First, unlike on-campus classes which meet on a prescribed date and time, AU students
select the days and times in which they will attend the course for the week. If the student has
attended on Wednesday and Friday, then the student has fulfilled his or her attendance obligation
for the remainder of the University’s week through Monday. Therefore, the student is not absent
on Saturday, Sunday, or Monday even if he or she does not click into the University. The
student is still in attendance and is active in his or her coursework as of the end of the week on
Monday based on his or her fulfillment of attendance requirements for that week’s session.



74
  For student 88429, AU originally paid a post-withdrawal disbursement of $202.50. The draft finding contends
that no post-withdrawal disbursement should have been paid. AU respectfully disagrees as shown on Exhibit 2-3,
but determined upon further review that the post-withdrawal disbursement should have been $101.25, creating an
overdisbursement of $101.25.
Final Report
ED-OIG/A05I0014                                                                     Page 86 of 155

        Second, AU’s calculation is consistent with the regulation allowing institutions to
measure the withdrawal date based on the last date of attendance at an academically-related
activity. The finding misconstrues the last “date” as the last day on which the activity occurred.
That approach would be appropriate for an on-ground campus with classes at established dates
and times. However, in the on-line classroom at AU, classes are open each week from Tuesday
through Monday with the requirement that the student attend class on at least two separate days
before the weekly session ends on Monday.

        To that end, AU does not count attendance in a subsequent week if the student does not
attend on at least two separate days in the week because the student would not have attended the
entire weekly session as required. AU takes this approach even though it may result in an earlier
withdrawal date (and require a larger refund) than under the OIG draft finding’s approach.
Accordingly, the last “date” is the last date of the week in which two days are attended.

         Third, Exhibit 2-5 demonstrates that the AU approach frequently resulted in a larger
refund than requiring AU to use the last day of click attendance regardless of whether a second
click occurred in that week. Exhibit 2-5 contains a chart summarizing the R2T4 calculations for
each of the 37 students using AU’s LDA and using the LDA based on the last day of click
attendance. The chart shows that the latter LDA would have resulted in AU returning less or the
same amount of Title IV funds than it did under its policy for 28 of the 37 students. The
differences in days for the remaining 9 students are only 1-5 days. Consequently, this data
shows that AU’s methodology typically resulted in larger refunds than would have resulted from
a less stringent approach of counting all days of click attendance.

        Fourth, AU’s calculation is consistent with the purpose of the R2T4 regulations which are
intended to identify the amount of earned Title IV funds based on the percentage of the payment
period completed. The regulation defines the percentage of the payment period completed as the
total number of calendar days in the payment period divided into “the number of calendar days
completed in that payment period as of the withdrawal date.” 34 C.F.R. § 668.22(f)(1)(i). The
regulation is focused on calendar days completed by the student because it is designed to provide
Title IV funds for the portion of the payment period completed by the student.

        Students attending at least two separate days during each weekly segment of the course
have completed all of the calendar days in that week’s session and remain active as of the end of
the week. Accordingly, AU recognizes that the student has completed all of the work required
for the days in that week. Finding 2 would arbitrarily and incorrectly disregard the student’s
completion of the week by not allowing a student to earn Title IV funds during a portion of the
week he or she completed.

         Similarly, AU does not count any calendar days in the week if the student does not attend
at least two separate days in the week. AU recognizes that these students have not completed the
calendar days in that week because the student did not complete the weekly segment of the
course. In these instances, AU correctly – and consistent with the regulation and its policy –
defines the withdrawal date as the last day of the last completed week of the course. Draft
finding 2 would arbitrarily and incorrectly count the days in the uncompleted week and allow the
student to earn Title IV funds during a period of the week he or she did not complete.
Final Report
ED-OIG/A05I0014                                                                                     Page 87 of 155

       For all of these reasons, the draft finding’s redefinition of student withdrawal dates is
incorrect and must be removed from the final audit report.

                         ii. The auditors’ withdrawal date calculations erroneously disregard
                             dates on which AU documented student attendance

       Finding 2 incorrectly disregards certain clicks counted by AU in determining student
withdrawal dates. The finding contends that AU does not review Blackboard to confirm
attendance and instead reviews a log generated from the system for how many times each student
clicked into his or her course each day on Blackboard. The finding concludes that the click
generated on the log might or might not have been related to academic activity.

       First, as discussed above, AU’s LDAs are calculated in accordance with Blackboard data.
Exhibit 2-4 contains Blackboard data for each of the 37 cited students. The chart in Exhibit 2-3
shows that the Blackboard data supports AU’s LDA calculation.

        Second, as discussed above, AU does not count each and every click by a student. AU
does not count initial clicks into the University’s online learning environment, or the clicks
directing students into their Online Homerooms, or the clicks in which the student selects one of
the courses in which they are enrolled. AU only counts clicks for attendance purposes once
students actually have clicked into their Learning Blocks for the course. These clicks constitute
the online equivalent of entering the classroom. AU does not count the preceding clicks leading
up to this point and disagrees with any suggestion that it counts any clicks without determining
whether they are related to academic activity in the program.

        Third, the clicks into the online Learning Blocks for the course do constitute attendance
at an academically-related activity under the regulations. Section V.B.3.ii above demonstrates
why this online activity constitutes attendance academically-related activity.

        Fourth, the draft finding’s apparent contention that the academic activity must entail
submission of an assignment is inconsistent with the regulation.75 The definition of “attendance
at an academically-related activity” in section 668.22 does not limit academic activities to those
involving completion of an exam or submission of an assignment. As shown in Section V.B.3.ii
above, the regulation includes passive activities such as attendance at computer-assisted
instruction, a tutorial, a study group, or counseling or advisement sessions.76 The regulation
does not require completion of an activity or an assignment, but only attendance at the activity.

        As in the traditional classroom setting, students in the online environment are not
required to submit assignments each time they enter the classroom, even though each session
contributes to some degree to the learning exchange and educational growth processes. Without
the student’s presence in their Learning Block, they would not be able to: learn, reflect on,
understand and respond to the requirements of their courses; launch, read and download research
and reading materials provided; interact with their instructors; interact with other students in
75
   The draft finding does not adequately explain or substantiate which clicks it recognizes as academic activities and
which it does not (i.e., whether an assignment or other activity must be submitted or completed, etc.).
76
   The regulation also makes clear that the list of activities is not limited to those listed in the regulation.
Final Report
ED-OIG/A05I0014                                                                                      Page 88 of 155

their classrooms; question, challenge, assimilate or participate in the coursework assignments
and submission processes. In short, students must attend their Learning Block classroom
sessions in order to be successfully engaged in their coursework.77 However, the regulations do
not require the submission of an assignment for this engagement to constitute attendance in an
academically-related activity.

             5. Finding 2 improperly seeks to retroactively enforce a proposed regulation
                which is yet to be promulgated or to take effect

         The University respectfully disagrees with the draft finding’s assertion that AU’s R2T4
calculations purportedly resulted in losses to the Title IV programs. As discussed above, the
regulations permit AU to establish the withdrawal date at the mid-point of the payment period
for all of its students who withdrew without notice. In order to determine purported losses to the
Title IV programs, the finding would have to compare AU’s calculations against the mid-point
methodology, not against its erroneous recalculations under AU’s methodology. As shown
above, this analysis demonstrated that the University refunded substantially more to the Title IV
programs than it was required to submit under the regulations.

        Moreover, both the OIG and the DOE lack the authority to recalculate refunds using
University attendance records and to sanction the University based on these erroneous
recalculations. The University was not required to use its attendance records to calculate
withdrawal dates or student refunds. Current law only obligates the University to use the mid-
point of the payment period or a later date of documented attendance.

        The DOE has proposed regulations which, for the first time, would require institutions
which are not required to take attendance to use their attendance records to calculate withdrawal
dates if they voluntarily take attendance.78 However, those rules are subject to notice and
comment procedures and have not been published in final form. Moreover, such regulations
would not take effect until July 1, 2011.

        The effect of draft finding 2 is to retroactively apply these proposed regulations to AU
and to its R2T4 calculations during the audit period. Yet, the OIG and the DOE lack the
authority to impose these recalculations based on attendance records which the law does not
require AU to use for R2T4 purposes. Indeed, the DOE conceded during negotiated rulemaking
that “[p]ursuant to the statute, we cannot require the school to use its attendance records if it is
not ‘required to take attendance.’”79 Accordingly, draft finding 2 must be withdrawn.




77
   As in any classroom, the student’s engagement is as unique and diverse as the students themselves. Some
students are very engaged, while others may be less engaged. As research shows, learning styles vary considerably
from individual to individual from the concrete to the abstract and from the active to the reflective. AU can support,
encourage, remind, provide additional help for all learning styles in the online environment, but, ultimately, active or
passive engagement in classroom activities are the responsibility of the learner.
78
   See 75 Fed.Reg. 34806, 34875 (June 18, 2010) (proposed 34 C.F.R. § 668.22(b)(3)).
79
   See DOE comments in Issue Paper #13 from Team 1 Negotiated Rulemaking team at
http://www2.ed.gov/policy/highered/reg/hearulemaking/2009/integrity-session3-issues.pdf.
Final Report
ED-OIG/A05I0014                                                                                     Page 89 of 155

         C. AU Correctly Determined Payment Period Lengths

        We now proceed from draft finding 2’s first contention (withdrawal date calculations) to
its second contention (payment period calculations). Draft finding 2 alleges that AU did not
revise the payment period end date for students who did not complete their credits according to
the student’s schedule. We respectfully disagree for the reasons discussed below.

        The R2T4 regulations base the return calculation in part on the total number of days in
the payment period.80 AU’s distance students are enrolled in non-term, credit-hour programs.
The students’ payment periods do not end until the student has successfully completed the credits
in the payment period.81 Typically, this is 12 credits for undergraduate programs and 9 credits
for graduate programs.82 The students’ payment periods could take longer to complete if the
student does not successfully complete a course.

        The DOE issued guidance stating that institutions with non-term, credit-hour programs
are required to project the completion date of the payment period based on the student’s progress
as of his or her withdrawal date in order to determine the total number of calendar days in the
period.83 Draft finding 2 alleges that AU did not revise the payment period end date for 57
students and purportedly overestimated the percentage of the days the students completed in the
period.84

         The draft finding’s contention that 57 students are at issue is overstated for three reasons:

            First, the auditors determined that no return was due for 22 students even under the
             auditors’ calculation methodology. The auditors determined that twenty-one of these
             students completed at least 60 percent of the payment period and, therefore, that no
             return was required. The auditors also determined that no return was due for a 22nd
             student because the student re-entered the program. Accordingly, these students are
             not at issue.85

            Second, the auditors determined that the payment period was shorter for 11 of the
             cited students. While we disagree with the auditors’ recalculation methodology, we
             note that a shorter payment period would result in a smaller return of funds than
             calculated by AU. Accordingly, these students are not at issue.

80
   34 C.F.R. § 668.22(f)(2).
81
   34 C.F.R. § 668.4(c).
82
   Bachelor and graduate students generally take one course at a time with each course typically measuring 5-6
weeks in length. Associate students generally take two courses at a time with each course typically measuring 8
weeks in length.
83
   Dear Colleague Letter GEN-04-03, November 2004.
84
   We note that the group of 57 students discussed in this section V.C regarding payment period calculations are
different from the group of 58 students discussed in the previous section V.B regarding withdrawal date
calculations. There is significant overlap between the two groups of students.
85
   We note that AU objects to the inclusion of these students in the draft finding for one or more of the other grounds
described in the categories described below. Consequently, AU respectfully disagrees with the conclusion that it
purportedly miscalculated the payment period lengths for these students. However, the finding is moot because it
concludes that no returns were due for these students.
Final Report
ED-OIG/A05I0014                                                                                   Page 90 of 155

            Third, the auditors incorrectly sought to recalculate the payment period for 2 of the
             cited students who were enrolled in a term program (i.e., an “AAB program”). The
             DOE guidance for projecting payment periods applies only to non-term, credit hour
             programs, not to term programs. Accordingly, these two students are not at issue.

Accordingly, the students in each of the three categories above – 35 students in total – are not at
issue because the draft finding does not contend that AU retained additional Title IV funds in
these instances. Therefore, only 22 students remain (i.e., the original 57 students cited minus the
35 students discussed above).

        We respectfully disagree with the draft finding’s recalculation of payment periods for the
22 remaining students for two reasons. First, AU was not required to adjust the payment periods
for 12 of these 22 students because the students did not fail to complete any of the courses in the
payment period prior to the course in which they withdrew. DOE guidance on this topic during
the audit period stated as follows:

        “Consider a nonterm credit-hour program offered in modules where some or all courses
        are offered sequentially and all students begin and end the modules at the same time. For
        a student who successfully completed all modules attempted up to the time the student
        withdrew, the completion date (and the corresponding number of days in the Return
        calculation) will be the number of days between the start of the first module and the
        originally scheduled end of the last module.”86

This guidance makes clear that the institution uses the originally scheduled number of days in the
payment period – i.e., no recalculation is required – if the student has successfully completed the
courses in the payment period until the student withdrew. Exhibit 2-6 includes a summary of the
data for each of these 12 students demonstrating that no payment period recalculation was
required.87

        Second, AU did in fact adjust the payment periods for the remaining 10 of 22 students
and did so in accordance with DOE’s guidance on this subject. Exhibit 2-6 also summarizes the
calculations made for these 10 students and substantiates that these calculations complied with
DOE guidance. The FSA Handbook during the audit period stated:

        “However, an institution must take into consideration any credits that a student has
        attempted, but not successfully completed before withdrawing. (Those credits must be
        successfully completed before the student is considered to have completed the period.)”88


86
   2006-2007 FSA Handbook at 5-68 to 5-69.
87
    For example, draft finding 2 contends that AU did not properly recalculate the length of the payment period for
student 108489. The spreadsheet in Exhibit 2-6 shows that the student withdrew during a payment period which
was scheduled to run for 168 calendar days. The student successfully completed one course in the payment period
and withdrew from the second course, but did not successfully complete two courses in the payment period. The
spreadsheet shows that AU included the remainder of the days in the course in which the student withdrew plus the
two remaining courses in the payment period. AU was not required to add any additional courses to the payment
period because the student had not failed to complete any of the prior courses in the payment period. 
88
   2006-2007 FSA Handbook at 5-69.
Final Report
ED-OIG/A05I0014                                                                                     Page 91 of 155

Under the AU approach, if a student failed or otherwise did not successfully complete a course in
the payment period, AU recalculated the payment period end date to take into consideration that
the student would have to successfully complete the failed course to complete the payment
period. Typically, this entailed extending the payment period by the number of days required to
complete the course starting consecutively after the end date of the class where the withdrawal
date occurred. Exhibit 2-6 demonstrates that AU made these calculations for each of these 10
remaining students.

        We note that the draft audit report does not explain or justify the apparently different
methodology it used to calculate payment period lengths. However, we note that neither the
Dear Colleague Letter nor the FSA Handbook dictate a precise methodology for conducting
these calculations. The Dear Colleague letter offers a recalculation example, but makes clear
that the institution has discretion to adopt a reasonable methodology:

         “For credit-hour nonterm programs where the student does not earn credits or complete
         lessons as he or she progresses through the program, the institution must have a
         reasonable procedure for projecting the completion date of the period based on the
         student’s progress before withdrawal.”89

AU’s methodology was reasonable and accounted for the student’s progress. As suggested in the
above-quoted passage from the Handbook, the institution took into consideration the credits
needed to complete the period by adding additional days to complete a failed course. The
methodology accounted for the student’s progress. For example, in those instances in which a
student failed to complete two or more courses in a period, AU added additional days sufficient
to complete the applicable number of additional courses.90

       Accordingly, for the reasons discussed above, we respectfully disagree with the draft
finding’s contentions regarding payment period calculations.

         D. AU Correctly Projected Tuition Charges In Its Return Calculations

         We now proceed from draft finding 2’s second contention (payment period calculation)
to its third contention (institutional charge calculation). Finding 2 contends that AU did not
correctly project tuition charges in the R2T4 calculations performed for 19 students. Students
were charged tuition for one course at a time rather than for all of the courses at the beginning of
the payment period. The R2T4 regulations require an institution to base its R2T4 calculations on
the tuition charges for the entire payment period.91 Therefore, the University projected the
additional courses the student would have completed had the student remained enrolled for the
89
   Dear Colleague Letter GEN-04-03, November 2004.
90
   AU complied with the applicable guidance regarding payment period recalculations. However, we note that the
suggestions contained in the Dear Colleague Letter and reiterated in the FSA Handbook are not recited in the
governing regulation. See 34 C.F.R. § 668.22. As a matter of law, Dear Colleague letters and the FSA Handbook
cannot serve as basis for a regulatory violation. Moreover, any such rule in these letters must be subject to the
negotiated rulemaking process (20 U.S.C. § 1098a) and promulgated under the notice and comment provisions of
the Administrative Procedure Act before it can be enforced (5 U.S.C. § 553; see also 20 U.S.C. § 1221e-4).
91
   See 34 CFR § 668.22(g)(institution must return the lesser of unearned Title IV funds or total institutional charges
incurred by the student for the payment period).
Final Report
ED-OIG/A05I0014                                                                                     Page 92 of 155

entire semester. The auditors conducted their own calculations and reached different results for
19 students. We respectfully disagree with those calculations.

         We note that the draft finding is overstated because the audit workpapers shows that the
auditors concluded that AU did not retain or over-disburse Title IV funds for four of the 19
students cited. In addition, the workpapers also show that the auditors concluded that
institutional charges were less than those calculated by AU for two other students among the 19
cited which would have resulted in smaller refunds than those actually made by AU.
Accordingly, these six students are not at issue in this draft finding. This leaves 13 students at
issue.

        Exhibit 2-7 includes a spreadsheet which analyzes the AU institutional charge
calculations for the 13 students at issue and compares them to the OIG’s calculations. The
spreadsheet shows that AU followed a defined procedure for projecting the tuition charges for
the entire payment period. Specifically, AU identified charges for classes that would be needed
to complete the payment period by projecting at the rate that would be charged on the start date
for each projected class.

         For example, student 115871 withdrew after the first course in her 4-course payment
period. The student had incurred $711 in charges for the first course. In order to calculate
institutional charges for the entire payment period, AU added charges for the three remaining
courses in the payment period. The first course on the student’s schedule was a level 100 three
credit course per the student’s grade level (grade level 1). Accordingly, AU added charges for
three additional courses at the 100 level: $711 for two of these courses beginning prior to June
30, 2007 and $771 for the third course beginning after June 30, 2007 under slightly higher rates
(i.e., $257 per credit instead of $237 per credit). AU correctly calculated institutional charges of
$2,904 for the payment period. Exhibit 2-7 explains the institutional charge calculations for each
of the 13 students at issue and shows that AU correctly calculated those charges.

        The draft finding does not explain or justify why it arrived at different charges than those
calculated by AU. However, the audit workpapers show that the auditors may have projected
higher charges because it identified one or more higher level courses on the student’s schedule at
the time of its audit. The auditor’s calculations are incorrect for two reasons.

         First, the AU methodology constituted a reasonable approach to projecting institutional
charges which was consistent with available DOE guidance during the audit period. We note
that the FSA Handbook fails to provide explicit guidance for calculating institutional charges for
institutions like AU that charge students by the course instead of the payment period.92
However, AU did adopt a methodology which complied with then-existing guidance:


92
  Indeed, the applicable regulation only states the institutions should include institutional charges “incurred” during
the payment period. The cited students only “incurred” charges for the courses they took before withdrawal, not the
remaining courses. Consequently, AU could have excluded the charges for these remaining courses which would
have resulted in a smaller return obligation for AU. AU instead followed the more conservative approach of
projecting charges for all courses in the payment period. However, AU cannot be sanctioned for the implementation
of this methodology because the regulations do not explicitly require it.
Final Report
ED-OIG/A05I0014                                                                     Page 93 of 155

       “The institutional charges used in the calculation usually are the charges that were
       initially assessed the student for the entire payment period or period of enrollment as
       applicable. Initial charges may only be adjusted by those changes the institution made
       prior to the student’s withdrawal (for example, for a change in enrollment status). If,
       after a student withdraws, the institution changes the amount of institutional charges it is
       assessing a student, or decides to eliminate all institutional charges, those changes affect
       neither the charges nor aid earned in the calculation.”

2006-2007 FSA Handbook at 5-24 (emphasis added).

        The Handbook advises institutions to use charges based on charges initially assessed for
the payment period. As discussed above, AU does not charge for all courses at the beginning of
the payment period. AU does certify the student at a grade level for the payment period, but only
charges tuition by the course after the start of each class. Accordingly, AU included 1) actual
charges for the courses for which AU charged the student and 2) charges for courses at the
student’s certified grade level for the remaining courses for which AU did not charge the student.
This approach is consistent with the above guidance and is based on the student’s initial grade
level and charges initially assessed. The Handbook explicitly states that institutions are not
required to account for the prospect that the charges after the student’s withdrawal might have
been different if the student had taken a course at a level higher than that for which the student
was initially certified.

         Second, the AU approach ensures consistency in treatment of all students. Students
frequently do not have a complete schedule for the payment period because a complete schedule
is not required to begin attendance. In other cases, a student’s schedule may show various
potential future courses based on future class availability or may show future courses for a
student re-entering the school. Ultimately, students have flexibility in establishing their schedule
and, therefore, the actual courses they will take are not determined until they start and are
charged for each sequential course. For these reasons, it would be inaccurate (as well as
inconsistent with the above-quoted guidance) to base projected charge calculations on data
available for some students – but not others – on courses which the student might or might not
take in the future. Instead, AU appropriately and correctly used charges for courses actually
taken and the grade level initially certified for all other courses in the payment period.

       Accordingly, for the reasons discussed above, we respectfully disagree with the draft
finding’s contentions regarding institutional charge calculations.

       E. OIG Recommendations 2.1 Through 2.5 Must Be Withdrawn

        The University respectfully disagrees with each of the five recommendations in Finding 2
for the reasons discussed below.

         OIG recommendation 2.1 requests the DOE to return $35,989 resulting from the
purportedly improper R2T4 calculations identified in the finding. For the reasons discussed in
this response, the University respectfully disagrees with the draft finding’s R2T4 recalculations
for all but one of the cited students in the amount of $101.25.
Final Report
ED-OIG/A05I0014                                                                       Page 94 of 155

         OIG recommendation 2.2 requests the DOE to require AU to conduct a 4-year file review
of all R2T4 calculations for all students who withdrew during the 2005-2006 through 2008-2009
award years to identify improperly retained Title IV funds. The finding does not provide a basis
for this file review requirement.

        First, AU has demonstrated that all of the draft finding’s recalculations are incorrect and
that the error rate for this finding is near 0 percent (i.e., one student out of 114 sampled in three
audit samples). Under DOE’s long-standing practice, an error rate of less than 10 percent does
not support the imposition of a 100 percent file review. The error rate of less than one percent is
insufficient to warrant a file review.

       Second, the finding is premised on a review of files from only one award year (2006-
2007) and does not provide any basis for expanding the review to cover a 4-year period.

        Third, the finding’s estimated calculations of improperly retained Title IV funds are
distorted. We note that the finding did not test files randomly selected from the entire universe
of AU students. Instead, the auditors drew three samples from two groups limited to Title IV
recipients who withdrew, had a zero grade point average, or were on a leave of absence. These
targeted and judgmental samples are not representative of AU’s total student population. For
that reason, the alleged error rates and dollar estimates are distorted because they do not measure
AU’s compliance across its entire student population.

        OIG recommendation 2.3 requests the DOE to recommend that AU develop written
policies and procedures to: (a) require a student’s withdrawal date to be based on last date of
academically related activity as supported by the distance education students’ coursework; (b)
correctly determine the end of the payment period for refund calculations; and (c) provide
reasonable assurance that tuition charges are accurately determined for refund calculations.

       With respect to 2.3(a), the University already has policies and procedures in place for
determining a student’s last date of attendance at an academically related activity. The
University disagrees with the Finding’s proposed methodology for calculating this date for the
reasons already articulated in this response.

        With respect to 2.3(b) and 2.3(c), the University also has written policies and procedures
in place to determine the end of the payment period and to calculate tuition charges. The
University disagrees with the Finding’s assertions of purported noncompliance in both of these
areas for the reasons already discussed above. Accordingly, the finding does not warrant further
revisions or updates in the University’s policies in any of the areas in 2.3(a) through (c).

        OIG recommendation 2.4 requests the DOE to consider a fine or other subpart G
proceeding based on the University’s purported failure to perform R2T4 calculations correctly.
The University’s response demonstrates that it did perform correctly all of the return calculations
cited in draft finding 2 with one nominal exception. The presence of even isolated
miscalculations would not support any fine or other action under subpart G.
Final Report
ED-OIG/A05I0014                                                                      Page 95 of 155

        OIG recommendation 2.5 requests the DOE to request a letter of credit from AU because
it purportedly exceeded the refund reserve standard’s compliance threshold under 34 C.F.R. §
668.173(c). We respectfully disagree for several reasons.

       First, the regulation does not apply here because it pertains to untimely returns, not to
miscalculated returns. The compliance threshold in section 668.173(c) requires:

       “In the sample of student records audited or reviewed that the institution did not return
       unearned title IV, HEA program funds within the timeframes described in paragraph (b)
       of this section for 5% or more of the students in the sample.”

34 C.F.R. § 668.173(c)(1)(i)(emphasis added).

        The compliance threshold is based on timeliness of the Title IV returns. However,
Finding 2 is focused not on timeliness of returns, but rather on whether AU correctly calculated
the returns it made. Therefore, the regulation does not apply to this finding.

        Second, in any event, the regulation would not apply because it pertains only to findings
in either of an institution’s two most recently completed fiscal years. The regulation states:

       “[A]n institution … must submit an irrevocable letter of credit acceptable and payable to
       the Secretary if a finding in an audit or review shows that the institution exceeded the
       compliance thresholds in paragraph (c) of this section for either of its two most recently
       completed fiscal years.”

34 C.F.R. § 668.173(d)(1)(emphasis added).

       The letter of credit requirement is triggered only by a finding in the two most recently
completed fiscal years. For AU, those two years are 2008 and 2009. However, draft finding 2
covers only the one-year audit period ending June 30, 2007, not on the 2008 and 2009 fiscal
years. Therefore, the regulation does not apply to this finding.

         Third, the University’s compliance audits for its two most recently completed fiscal years
did not report late returns in excess of the compliance thresholds. Exhibit 2-8 contains copies of
the University’s annual Title IV compliance audits prepared by an independent third party
accounting firm for the 2008 and 2009 fiscal years. Neither audit contains a late return of title
IV funds finding in excess of the compliance thresholds. Accordingly, there is no basis for a
letter of credit requirement under the regulation.

         Finally, as discussed above, the draft finding is not based on randomly selected files from
the entire universe of AU students to whom returns were due. Instead, the auditors drew a
judgmental sample and drew other samples from populations which includes not only students
who withdrew, but also students with zero grade point averages and leaves of absence. These
samples do not comply with the regulation which requires that “[f]or purposes of determining
this percentage [i.e., the compliance threshold], the sample includes only students for whom the
institution was required to return unearned funds during its most recently completed fiscal year.”
Final Report
ED-OIG/A05I0014                                                                        Page 96 of 155

34 C.F.R. § 668.173(c)(1)(i). Moreover, the OIG’s audit guide requires that the sample used to
test returns of title IV funds be drawn at random from a population of students who withdrew
during the compliance period.93 The judgmental sample and the targeted universes from which
samples were drawn do not comply with this standard. For all of these reasons, OIG
recommendation 2.5 must be withdrawn.

V.         Draft Finding 3: Timeliness of Return-to-Title-IV Payments

       The University respectfully disagrees with draft finding 3 and with its recommendations.
The draft finding contends that the University did not return Title IV funds timely for certain
students who withdrew during the 2006-2007 timeframe. However, as discussed below:

              The draft finding fails to recognize that AU used a stricter methodology for
               calculating the deadline for an R2T4 calculation than it could have adopted under
               DOE regulations. AU’s returns were routinely paid weeks and even months in
               advance of the deadlines it could have used as discussed in Section VI.A below.
               Therefore, the draft finding’s suggestion that the purported lateness of AU refunds
               harmed the Title IV programs is incorrect.

              The draft finding addresses a topic already identified in AU’s compliance audits from
               the audit period and already addressed by AU as evidenced by its subsequent
               compliance audits. AU previously reported the occurrence of untimely returns in
               findings in its 2007 annual Title IV compliance audit reports and submitted a letter of
               credit to the DOE. The draft finding acknowledges that AU subsequently took
               corrective actions. AU has demonstrated the success of those corrective actions by
               the absence of a material R2T4 timeliness finding in its compliance audits for 2008
               and 2009. As discussed in Section VI.B., the absence of such findings justify the
               release of the letter of credit under DOE regulations.

              The draft finding’s results are distorted. The draft finding contends that returns were
               as many as 273 days late. Yet, the actual results show that, even under the stricter
               methodology adopted by AU, only four of the cited returns were greater than 40 days
               late. As noted in Section VI.B below, the alleged periods of lateness for the other
               returns were shorter and at least one-third were less than seven days late (i.e., seven
               of the 21 cited) under the more stringent methodology adopted by AU.

For the reasons discussed in this response, the finding and its recommendations should be
withdrawn in their entirety.




93
     See OIG Audit Guide at I-14 to I-15.
Final Report
ED-OIG/A05I0014                                                                                     Page 97 of 155


           A. Ashford University Used A Stricter R2T4 Deadline Methodology Than Required
              By Governing Law

        At the outset, we note that AU returns Title IV funds to the Title IV Programs earlier than
would be required under the most lenient methodology it could adopt under the applicable
regulations. Draft finding 3 does not recognize this point in its discussion of refund timeliness.
Accordingly, its suggestion that the timing of cited refunds purportedly resulted in losses to the
Title IV Programs is incorrect.

       The R2T4 regulations require an institution to return Title IV funds for which it is
responsible under the R2T4 calculation “no later than 45 days after the date of the institution’s
determination that the student withdrew as defined in paragraph (l)(3) of this section.” 34 C.F.R.
§ 668.22(j).

        Paragraph (l)(3) defines the “date of the institution’s determination that the student
withdrew” for a student who does not provide notification of his or her withdrawal as “the date
that the institution becomes aware that the student ceased attendance.” 34 C.F.R. § 668.22(l)(3).

       However, the regulations do not require an institution to determine the withdrawal date of
a student until 30 days after the end of the earlier of the student’s payment period, the student’s
academic year, or the student’s program.94

         In effect, the regulations permit institutions which are not required to take attendance to
wait until well after a payment period is over to determine a student’s withdrawal date. This 30-
day timeframe, coupled with the 45-day return deadline, means that such institutions are not
required to make Title IV returns until as many as 2 ½ months after the student’s payment period
ends. This would be the case even if the student had withdrawn without notice within a few days
of starting the payment period.

         However, AU did not take this lenient approach to its return calculations that many other
institutions across the country take advantage of. Instead, AU voluntarily monitors attendance
and makes determinations of student withdrawals throughout the payment period. As a result,
AU routinely makes its return calculations and refunds during the payment period rather than
weeks or months after its conclusion. This results in AU routinely restoring Title IV funds to the
Title IV Programs weeks or even months in advance of the deadline that would apply if AU
followed the approach taken by other institutions.

94
     The regulation states:

           “An institution must determine the withdrawal date for a student who withdraws without providing
           notification to the institution no later than 30 days after the end of the earlier of the—
                     (i)      Payment period or period of enrollment, as appropriate, in accordance with paragraph
                              (e)(5) of this section;
                     (ii)     Academic year in which the student withdrew; or
                     (iii)    Educational program from which the student withdrew.”

34 C.F.R. § 668.22(j)(2).
Final Report
ED-OIG/A05I0014                                                                         Page 98 of 155

       Consequently, AU objects to the draft finding’s assertion regarding the impact of this
finding on the Title IV Programs. AU returned the cited refunds well in advance of the deadline
that would have applied had it chosen not to take attendance and not to make withdrawal date
determinations until after the end of a payment period. The draft finding’s assertion should be
withdrawn.

           B. OIG Recommendations 3.1 Through 3.3 Must Be Withdrawn

        OIG Recommendation 3.1 requests that FSA require AU to develop and implement
written policies and procedures that provide reasonable assurance that unearned Title IV funds
are returned timely. The recommendation should be withdrawn because the University already
has successfully implemented such policies and procedures.

        AU, in conjunction with ACS, which processes the University’s return of Title IV aid
calculations, already has developed written policies and procedures to address this issue. The
draft finding references enhancements made by ACS to provide better measurement of the
timing of payments, additional staffing deployed by ACS, and the assignment of a senior
processor by ACS to ensure that calculations and payments are completed in a timely manner.95

        The success of these efforts is demonstrated in the two most recently completed annual
Title IV compliance audits of the University conducted by an independent certified public
accounting firm. The audits covered the 2008 and 2009 fiscal years, which took place after the
timeframe reviewed in the draft finding (i.e., the award year ending June 30, 2007). Both audits
examined timeliness of return of Title IV payments within a random sample of student files for
the pertinent fiscal year and concluded that the University complied with the timeliness
thresholds in 34 C.F.R. § 668.173(c). The regulation states as follows:

           “(c) Compliance thresholds. (1) An institution does not comply with the reserve standard
           under § 668.173(a)(3) if, in a compliance audit conducted under § 668.23, an audit
           conducted by the Office of Inspector General, or a program review conducted by the
           Department or guaranty agency, the auditor or reviewer findings—

                         i. In the sample of student records audited or reviewed that the institution
                            did not return unearned title IV, HEA program funds within the
                            timeframes described in paragraph (b) of this section for 5% or more of
                            the students in the sample. (For purposes of determining this percentage,
                            the sample includes only students for whom the institution was required to
                            return unearned funds during its most recently completed fiscal year.); or
                        ii. A material weakness or reportable condition in the institution’s report on
                            internal controls relating to the return of unearned title IV, HEA program
                            funds.

           (2)    The Secretary does not consider an institution to be out of compliance with the
           reserve standard under § 668.173(a) if the institution is cited in any audit or review report

95
     See Draft Audit Report at 19.
Final Report
ED-OIG/A05I0014                                                                     Page 99 of 155

       because it did not return unearned funds in a timely manner for one or two students, or
       for less than 5% of the students in the sample referred to in paragraph (c)(1)(i) of this
       section.”

34 C.F.R. § 668.173(c). Exhibit 2-8 contains copies of the University’s Title IV compliance
audit reports for the 2008 and 2009 fiscal years. Neither audit report contains a late return
finding in excess of the 5 percent threshold. These reports demonstrate that AU meets the
regulatory standard for both years.

       Accordingly, we respectfully submit that recommendation 3.1 is moot and must be
withdrawn. Ashford successfully implemented written policies and procedures which addressed
the concerns raised in Finding 3 as evidenced by the University’s compliance audits for the two
most recently completed fiscal years.

       OIG Recommendation 3.2 recommends that FSA consider a fine or other Subpart G
proceeding based on this finding. We disagree and respectfully submit that the finding does not
warrant such action for several reasons.

       First, as discussed above, the University’s two most recent compliance audits
demonstrate that the University has successfully and promptly addressed the issues raised in the
finding. The finding itself concerns an older time period (i.e., the award year ended June 30,
2007) and did not examine the time periods reviewed and reported on by an independent auditor
in AU’s more recent annual Title IV compliance audits.

         Second, the scope of the draft finding is distorted because it is not premised on a random
selection of files. As discussed in response to draft finding 2, which used the same samples as
draft finding 3, the auditors did not test files randomly selected from the entire universe of AU
students. Instead, the auditors drew three samples from two groups limited to Title IV recipients
who withdrew, had a zero grade point average, or were on a leave of absence. These targeted
and judgmental samples are not representative of AU’s total student population. For that reason,
the alleged error rates are distorted because they do not measure AU’s compliance across its
entire student population.

         Third, the draft finding overstates the extent of the alleged untimeliness of refunds. The
draft finding contends that the range of lateness extended up to 273 days late. Yet, only 4 of the
cited returns were greater than 40 days late. The alleged periods of lateness for the other returns
were shorter and at least one-third were less than seven days late (i.e., seven of the 21 cited).

        Lastly, the draft finding does not dispute that Ashford did in fact pay the required returns
to each of the cited students. The draft finding does not involve any instances of unpaid returns
or any failure by the University to return Title IV funds for these students. The draft finding
instead involves instances of lateness which in some cases were alleged to be as little as two days
late. For all of these reasons, recommendation 3.2 must be withdrawn.
Final Report
ED-OIG/A05I0014                                                                     Page 100 of 155

       OIG recommendation 3.3 recommends that FSA request a letter of credit from the
University because it purportedly exceeded the refund reserve standard’s compliance threshold
under 34 C.F.R. § 668.173(c). The recommendation must be withdrawn for at least two reasons.

       First, the recommendation is moot because AU already has submitted a letter of credit to
the Department based on late returns previously reported in its Title IV compliance audit for the
2007 fiscal year. This time period overlaps with the 2006-2007 timeframe covered by finding 3.

       Second, the regulations no longer require the University to maintain a letter of credit
based on timeliness of returns. The regulation provides as follows:

      “[A]n institution … must submit an irrevocable letter of credit acceptable and payable to the
      Secretary if a finding in an audit or review shows that the institution exceeded the
      compliance thresholds in paragraph (c) of this section for either of its two most recently
      completed fiscal years.”

34 C.F.R. § 668.173(d)(1)(emphasis added).

         The regulation makes clear that the requirement to submit a letter of credit only applies if
the compliance threshold is exceeded “for either of its two most recently completed fiscal years.”
The institution’s two most recently completed fiscal years are 2008 and 2009. Draft finding 3
covered a prior time period (i.e., the award year ended June 30, 2007). As discussed above, the
institution’s Title IV compliance audit reports for the two most recently completed fiscal years –
2008 and 2009 – did not contain late return findings in excess of regulatory maximums. These
most recent findings warrant the removal of the requirement to submit a letter of credit, not the
imposition of such a requirement. Accordingly, the recommendation to submit a letter of credit
should be withdrawn.

VI.      Draft Finding 4: Authorization to Retain Student Credit Balances

         A. Introduction

       Draft finding 4 alleges that the University’s credit balance authorization form did not
comply with regulations and recommends that the DOE require the University to revise its
authorization form. Although we respectfully disagree with the draft finding and note that it
does not cite any instances of failing to pay credit balances to students, the draft finding is moot
because 1) the University already has revised its authorization form and 2) the DOE already has
approved the revised form. The draft finding should be withdrawn because no further action by
AU is required.

         B. The University’s prior authorization form complied with regulations

        We respectfully disagree with the draft finding’s objections to our prior credit balance
authorization form. The draft finding alleges that 1) the prior form was not voluntary because it
was included on the University’s financial aid application which the student was required to sign;
2) the prior form does not clearly state that the student or parent has given the University the
Final Report
ED-OIG/A05I0014                                                                                        Page 101 of 155

authorization to hold credit balances for the student or parent; and 3) the prior form does not
provide a student or parent the option not to authorize the University to retain a credit balance
(the only yes or no options pertain to what the balance may be applied to other than tuition and
fees).

        However, by giving “Yes” and “No” options, the prior form clearly notified the student
or parent that he or she either may give or not give authorization to hold credit balances to pay
for 1) educationally related activities other than tuition and fees for the payment period covered
by the award or 2) minor charges for the prior period. The form also clearly notifies the student
or parent of his or her right to withdraw any authorization or consent at any time by contacting
the financial aid office. Specifically, the form states that “I (We) may withdraw my approval for
any one or all of the above authorizations at any time. This may be accomplished by contacting
the financial aid office.”

        While there is not a “Yes” or “No” option just preceding the first statement regarding the
“crediting of federal financial aid funds directly to the student’s account to cover educational
costs for the payment period covered by the awards,” no such option is required. First, if the
student did not want to give such a consent, he or she could refuse to sign the acknowledgement
form. Second, as noted above, the student was informed that he or she had the right at any time
to withdraw any or all of the authorizations. Third, and more fundamentally, the student has no
right to refuse to permit the institution to apply federal student aid funds toward payment of the
tuition and fees for which the aid was awarded. The regulations specifically provide that no
consent is required in order to use federal student aid funds to pay tuition and fees for which the
aid was awarded.96 For these reasons, we respectfully disagree with the draft finding’s assertions
regarding the prior authorization form.

         C. The Department has approved the University’s current credit balance
            authorization form

       Draft finding 4 recommends that the DOE require AU to modify its credit balance
authorization form to comply with applicable requirements. Notwithstanding our disagreement
with the draft finding, we already have revised our credit balance authorization form. Moreover,
the DOE has reviewed and approved the new form. Accordingly, the draft finding and its
recommendations are moot and must be withdrawn.

        The revised form entitled “Authorization for Ashford University to Hold a Federal
Student Aid Credit Balance” is attached as Exhibit 4-1. The form addresses each of the stated
concerns in draft finding 4. First, the form is voluntary and does not require the student or parent
to sign the form. The form contains multiple references to the student and parent not being
required to sign (e.g., “This form, if signed by the student…”; “If you elect not to sign this
form…”; etc.).


96
  See 34 C.F.R. § 668.164(d)(“Without obtaining the student’s or parent’s authorization under § 668.165, an
institution may use title IV, HEA program funds to credit a student’s account at the institution to satisfy current
charges for – (i) Tuition and fees; (ii) Board, if the student contracts with the institution for board; and (iii) Room, if
the student contracts with the institution for room.”)(emphasis added).
Final Report
ED-OIG/A05I0014                                                                   Page 102 of 155

       Second, the form makes clear that the student is authorizing AU to hold credit balances.
The opening paragraph explains what a credit balance is and explains that the credit balance
must be paid to the student within 14 days unless the student authorizes AU to hold the credit
balance. The form then states that: “This form, if signed by the student (or parent in the case of
a PLUS loan), authorizes Ashford University to hold any Federal student aid credit balance
beyond the 14 day period.”

       Third, the form also notifies the student of the option to withdraw the authorization and
how to exercise that option. The form states: “This authorization may be withdrawn at any time
by providing a written request to Revocations@ashford.edu or to the following mailing
address…”

        Finally, the DOE has reviewed and approved the revised credit balance authorization
form. Exhibit 4-2 contains e-mail correspondence between AU and the DOE regarding the
revised form between August and November 2009. AU provided a copy of its authorization
form to the DOE and revised the form in response to recommendations received from the DOE.
The follow-up correspondence from November 5th indicates that the DOE review included
recommendations from DOE policy personnel as well as earlier recommendations from the
DOE’s regional office in Kansas City. AU updated the form to respond to the comments from
the DOE. The correspondence culminated in a November 13, 2009 e-mail from the DOE
notifying AU that it had reviewed the form, concluded that it appeared to be in compliance with
Title IV requirements, and instructing AU to start using the form. AU subsequently
implemented the new credit balance authorization form reviewed and approved by the DOE.

       D. OIG Recommendations 4.1 Through 4.3 Must Be Withdrawn

        OIG recommendation 4.1 must be withdrawn. The recommendation requests FSA to
require AU to revise its authorization form to comply with applicable requirements. As
discussed above, AU already has revised its form, and the DOE already has reviewed and
approved the revised form.

        OIG recommendation 4.2 must be withdrawn. The recommendation requests FSA to
require AU to provide its students and parents the opportunity to sign or refuse to sign the
authorization form and to pay credit balances to any student or parent who chooses not to sign
the revised form. For the reasons discussed above, both the current and prior forms provide
students and parents with this authority. The DOE has reviewed and approved AU’s current
credit balance authorization form.

        OIG recommendation 4.3 is based on an incorrect statement of law and must be
withdrawn. The recommendation requests that FSA require AU to cease drawing, disbursing
and holding credit balances for which there are no charges. The recommendation is premised on
the position that the “University may make multiple disbursements during a payment period, but
it must draw and disburse Title IV funds only when they are needed to pay allowable charges.
We respectfully disagree.
Final Report
ED-OIG/A05I0014                                                                                   Page 103 of 155

       First, the regulation explicitly requires an institution to make disbursements on a payment
period basis:

         “(b) Disbursements by payment period. (1) Except as provided in paragraph (b)(2) of
         this section,97 an institution must disburse title IV, HEA program funds on a payment
         period basis.

34 C.F.R. § 668.164(b)(1). The regulation clearly states that an institution “must” disburse Title
IV on a payment period basis, not on a course-by-course basis, a modular basis, or some other
basis.98

       Second, the regulation does not require an institution to make multiple disbursements
within a payment period basis. Indeed, the regulation generally requires an institution to
disburse Title IV funds once each payment period:

         “An institution must disburse title IV, HEA program funds once each payment period
         unless—
                (i)     For FFEL and Direct Loan funds, 34 CFR 682.604(c)(6)(ii) or 34 CFR
                        685.301(b)(3) applies;
                (ii)    For Federal Perkins Loan, FSEOG, Federal Pell Grant, ACG, and National
                        SMART Grant Funds, an institution chooses to make more than one
                        disbursement in each payment period in accordance with 34 CFR
                        674.16(b)(3), 34 CFR 676.16(a)(3), 34 CFR 690.76, or 34 CFR 691.76, as
                        applicable; or
                (iii) Other program regulations allow or require otherwise.

34 C.F.R. § 668.164(b)(1) (emphasis added). The regulation makes clear that the decision to
make more than one disbursement during the payment period is a matter of institutional choice,
not a requirement.99

       Third, the disbursement regulations explicitly anticipate that Title IV disbursements may
exceed charges assessed by the institution. The regulations do not prohibit these disbursements
from occurring. As noted above, the regulations require disbursements to be made on a payment
period basis. Instead, the regulations recognize the difference as a credit balance and prescribe
requirements for handing these balances.

         Fourth, the draft finding contends that sections 668.164(d)(1) and (4) do not permit
institutions to disburse funds in excess of charges assessed as of the date of disbursement. This
is incorrect. Section 668.164(d)(1) states that an institution may use Title IV funds to credit a

97
   Paragraph (b)(2) refers to the FWS program.
98
   This is consistent with the R2T4 regulations which require institutions to calculate returns based on institutional
charges for the entire payment period, not just the institutional charges actually assessed for the payment period.
See 34 CFR § 668.22 and our response to draft finding 2.
99
   See also FSA 2009-2010 FSA Handbook at 4-33 (“When scheduling loan disbursements, you can request multiple
disbursements of a loan within a payment period or loan period, as long as the disbursements are substantially equal
installments.”). The Handbook says an institution “can” request, not “is required” to request.
Final Report
ED-OIG/A05I0014                                                                                    Page 104 of 155

student’s account at the institution to satisfy current charges (i.e., charges assessed for the current
award year or loan period). However, the provision does not prohibit institutions from
disbursing funds in excess of current charges.

       The regulations discussed above anticipate that disbursements may exceed current
charges and create a credit balance. This is why the regulations include rules on credit balances.
The credit balance rules require the institution to treat the excess funds as a credit balance until
additional charges for the payment period are assessed. These provisions do not prohibit schools
from disbursing funds on a payment period, nor from disbursing funds in excess of current
charges. The rules simply require schools to have an appropriate authorization form to address
the handling of excess funds. As discussed above, the DOE already has reviewed and approved
AU’s form. For all of these reasons, OIG Recommendation 4.3 must be withdrawn.

VII.     Draft Finding 5: Disbursements of Title IV Funds

         A. Introduction

       The University respectfully disagrees with draft finding 5 and with its recommendations.
The draft finding contends that the University made disbursements to certain students before
they had become eligible for those disbursements. For the reasons discussed in this response, the
finding and its recommendations should be withdrawn in their entirety.

         B. The Draft Finding Does Not Involve Unreturned or Unearned Title IV Funds:
            The Disbursements For All But One of the 90 Students Tested Were Fully
            Earned or Fully Returned to the Title IV Programs

         At the outset, we note that a careful review of draft finding 5 shows that, for all but one
of the 90 students tested (89 out of 90 students), the auditors concluded that all of the cited
disbursements either were earned in full through successful completion of subsequent
coursework or returned in full by the University to the Title IV programs. Thus, the draft finding
is not the product of the University retaining Title IV funds to which it and its students were not
entitled.

        Specifically, the draft finding tested the disbursements to 90 students comprised of two
samples of 50 students and 40 students, respectively. The draft finding contends that one or
more disbursements were made prematurely to 21 of the 50 students in the first sample100 and to
two of the 40 students in the second sample.101 Yet, the draft finding concluded that students
ultimately became eligible for disbursements in some cases102 and that the University ultimately
returned the disbursements in all but one of the other cases.103 The draft finding only identified
one student with two disbursements totaling $5,520 which the student did not earn and which the


100
    The draft finding contends that these 21 students collectively received 55 allegedly improper disbursements.
101
    The draft finding contends that these two students collectively received three allegedly improper disbursements.
102
    The draft finding contends that students ultimately earned 22 of the 55 disbursements.
103
    The draft finding contends that the University returned the 31 of the 55 disbursements in the first sample and all
three of the cited disbursements in the second sample.
Final Report
ED-OIG/A05I0014                                                                      Page 105 of 155

institution did not return. The auditors acknowledged in their workpapers that these two
disbursements have since been repaid.

           C. The Draft Finding’s Results Are Distorted Because They Are Not Based On A
              Random Sample of Files And Contain Errors

       The alleged exceptions in the draft finding are not based on samples drawn from the full
universe of the University’s population. Instead, the auditors drew its 50-student sample from a
universe which the draft finding concedes was selected to target students at risk of receiving
improper disbursements:

           “For the disbursement universe, we analyzed distance education students who we
           considered at risk of receiving improper disbursements. In a non-term program, a
           payment period is the period of time in which the student completes half the number of
           credit hours in the program and half the number of weeks in the program. We considered
           the student to be at risk of an improper disbursement if the disbursement were made prior
           to the student completing the prior payment period’s hours. … We randomly selected 50
           distance education students from our targeted universe of 3,521.”104

       Consequently, the draft finding’s results do not constitute a representative portrayal of
purported instances of untimely disbursements among the entire population of AU’s students.
Instead, the draft finding presents a distorted view by focusing exclusively on “at risk” students.
Even then, the draft finding identified only one student with disbursements which were neither
earned nor returned.

       Moreover, we note that the second sample – a randomly selected 40-student sample
drawn from students placed on a leave of absence – yielded an alleged error rate of only five
percent (two out of 40 students). Even this sample does not constitute a genuine random sample
because it was not drawn from the full population of AU students. However, this sample does
show that a less targeted population yielded a much smaller incident rate than the judgmental
sample which produced the bulk of the draft finding.

         Lastly, the draft finding is overstated because its conclusions with respect to at least 15 of
the cited disbursements are incorrect. For example, the draft finding contends that AU disbursed
Title IV funds prematurely to student 102365. However, Exhibit 5-1 shows that the student
entered the second award year on June 12, 2007 and posted attendance in that course so was
eligible for the disbursements received on July 12, 2007. Exhibit 5-1 also shows that this student
entered the second payment period of the second award year on December 4, 2007 and was
therefore eligible for the disbursements received on December 25, 2007. Consequently, AU did
not disburse the cited disbursements prematurely as claimed in the draft finding. Exhibit 5-1
provides similar information demonstrating that AU timely made the disbursements to the other
listed students.




104
      Draft Audit Report at 23.
Final Report
ED-OIG/A05I0014                                                                                   Page 106 of 155

         D. Recommendations

        The University respectfully disagrees with each of the three recommendations in Finding
5 for the reasons discussed below.

        OIG recommendation 5.1 requests DOE to require the University to review its records for
all students who received Title IV, HEA program disbursements over a 4-year period (2005-2006
through 2008-2009 award years); identify all disbursements made to students who were not
eligible for them at the time of the disbursement and never became eligible for the
disbursements; and return those amounts to the Department or the FFEL Program lenders, as
appropriate. The recommendation must be withdrawn for several reasons.

        First, the draft finding does not support the file review requirement. The file review is
intended to identify disbursements for which students “never became eligible” and which the
University did not return. However, as discussed above, the draft finding identified only one
such student out of an overall population of 90 students (i.e., less than 2 percent of the
population).105 Under DOE’s long-standing practice, an error rate of less than 10 percent does
not support the imposition of a 100 percent file review.

       Second, the draft finding is premised on a review of files from only one award year
(2006-2007) and does not provide any basis for expanding the review to cover a 4-year period.

        Third, the draft finding’s estimated calculations of improperly retained Title IV funds are
distorted. The draft finding did not test files randomly selected from the entire universe of AU
students. Instead, the auditors drew a sample from what it admitted was a judgmental sample
selected to target students at risk of an improper disbursement. This targeted and judgmental
sample is not representative of AU’s total student population and does not provide a basis for
requiring a file review to test for purported noncompliance across AU’s entire student
population.

        OIG recommendation 5.2 requests DOE to require the University to develop and
implement written policies and procedures to provide reasonable assurance that Title IV, HEA
program funds are not disbursed until after the University confirms the student’s eligibility for
the disbursement. Although we believe that there was not a systemic problem with
disbursements prior to eligibility the University implemented additional procedures subsequent
to the audit period which address the concerns identified in draft finding 5.

        OIG recommendation 5.3 requests DOE to consider a fine or other subpart G proceeding
due to the University disbursing Title IV funds to students who were allegedly ineligible at the
time of the disbursement. We disagree and respectfully submit that the draft finding does not
warrant such action.



105
   Indeed, when the results are excluded from the 50-student sample – which the draft finding concedes was a
targeted, rather than random, sample – the draft finding did not identify any students in its other sample of 40
students.
Final Report
ED-OIG/A05I0014                                                                    Page 107 of 155

       First, as discussed above, the draft finding overstates the extent of the alleged
noncompliance and harm to the Title IV programs. The disbursements to all but one of the 90
students tested by the auditors were fully earned by the student through subsequent coursework
or were returned in full to the Title IV programs by the University. These disbursements do not
involve instances of the University or the student ultimately retaining Title IV funds to which
they were not entitled.

        Second, the scope of the draft finding is distorted because it is not premised on a random
selection of files. As already discussed above, the auditors drew a sample from a judgmental
sample targeted at identifying noncompliance among an at-risk group rather than identifying
alleged noncompliance across AU’s total population. Indeed, the error rate is nominal in the
more representative yet still targeted second sample of 40 students. This nominal error rate does
not warrant further action.

           Accordingly, OIG recommendation 5.3 should be withdrawn.

VIII. Draft Finding 6: Leaves of Absence

       We respectfully disagree with the draft finding’s contention that AU did not always have
documentation to support distance education students’ leaves of absence (LOA) during the 2006-
2007 award year. The draft finding is based on a review of a sample of 40 students who were
placed on an LOA. The draft finding contends that it found discrepancies with 20 of these
students.

           The draft finding is incorrect, however, for several reasons.

           A. The Draft Finding concedes that leaves of absence did not exceed federal limits

        The draft finding contends that there is a risk that distance education students might have
been on leaves of absence longer than permitted by Federal regulations. Yet, as the draft finding
concedes, “none of the leaves of absence exceeded 180 days in any 12-month period, the
maximum number of days allowed by 34 C.F.R. § 668.22(d)(1)(vi).”106 Consequently, the draft
finding did not identify even one LOA in excess of federal limits among its 40-student sample.
Its suggestion that there is a risk of noncompliance with federal requirements on this issue is
unsupported by its own audit sample.

           B. An institution cannot be sanctioned merely for a purported violation of internal
              policy

       The draft finding contends that eleven of 40 students received an LOA in excess of AU
policy. Although we disagree with this conclusion, the draft finding is alleging noncompliance
not with law, but with University policy. As a matter of law, an institution may not be
sanctioned for noncompliance with an internal policy, only with noncompliance with governing


106
      See Draft Audit Report at 29.
Final Report
ED-OIG/A05I0014                                                                                  Page 108 of 155

regulations.107 As the draft finding concedes, the LOAs tested by the OIG did comply with
federal limits on duration.

        C. The draft finding incorrectly recalculates the duration of the leaves of absence

        The draft finding incorrectly recalculates the length of the LOAs granted by AU based on
its improper redefinition of a student’s last date of attendance. Under AU policy, the start date
for a student’s LOA is the student’s last date of documented attendance. As already discussed in
our earlier response to draft finding 2, AU established a student’s LDA through examination of
attendance clicks in the Blackboard software system and application of its attendance policy
which established the LDA as the last day of the week in which the student attended class for at
least two days during the week. As also discussed in response to draft finding 2, AU’s LDA
calculation process complied with governing regulations. The draft finding lacks the support to
redefine AU’s LDA calculations.

        Because the duration of an LOA is tied to the student’s LDA, the finding’s recalculation
of the LDA also resulted in a recalculation of the duration of the LOA and the conclusion that 11
of the 40 students sampled received LOAs in excess of AU policy (but not in excess of federal
regulations). We also note that the draft finding’s results, even if incorrectly accepted, are
distorted. The finding contends that 19 of the 40 students had purportedly unsupported LDAs,
yet concedes that only 11 of the 19 purportedly received LOAs in excess of AU’s LOA policy.
We also note that in many cases the purported “discrepancies” are minimal – all but four are
seven days or less, four are only one day, and one resulted in a later LDA.

       For the reasons already discussed at length in response to draft finding 2, the
recalculations of student LDAs in draft finding 6 are incorrect.

        D. The University correctly calculated R2T4 returns for the two cited students

        The finding contends that 2 of the 40 students did not return from their LOAs and that
AU did not calculate correct R2T4 calculations for them. As discussed below, the draft finding
recommends that DOE require AU to return the additional funds purportedly owed under these
calculations. However, the draft finding is incorrect.

        With respect to the first of the two students (student #113549), the draft finding alleges
that the student completed only 50% of the payment period and that the R2T4 calculation would
have resulted in a return obligation of $1,768 (rounded up from $1,767.50). However, the draft
finding reached this conclusion by incorrectly recalculating the student’s LDA as described
above108 and understating the portion of the payment period completed by the student. AU
correctly concluded that the student completed at least 60% of the payment period and that no
return obligation was required. See Exhibit 6-1.



107
    See, e.g., In the Matter of Southeastern University, Dkt. No. 93-61-SA (June 22, 1994 (appealed), October 6,
1995 (sustained), February 8, 1996 (remanded on other issues)).
108
    The OIG incorrectly recalculated the student’s LDA as April 25th. The correct LDA was April 30th.
Final Report
ED-OIG/A05I0014                                                                                 Page 109 of 155

        With respect to the second of the two students (student #116492), the draft finding
alleges that AU under-calculated the return calculation and owes an additional $1,228 (i.e.,
$1,657 instead of $429). However, the discrepancy is again the result of the finding’s incorrect
recalculation of the student’s LDA as described above109 and understating the portion of the
payment period completed by the student. AU correctly calculated and paid the return amounts
owed. See Exhibit 6-1.

           E. Institutions cannot be sanctioned for missing LOA paperwork for two students

       The draft finding’s contentions regarding purportedly missing LOA paperwork are
overstated and incorrect. The draft finding only cites two students110 out of a sample of 40 with
purportedly missing LOA documentation, or five percent of the overall sample. The draft
finding does not contend that there are any liabilities associated with these students.

        In addition, the lack of documentation does not support the draft finding because there is
other evidence supporting the LOAs granted to both students. Specifically, the draft finding
contends that AU did not provide the auditors with copies of the LOA forms completed by the
students. That is correct. The forms signed by these students have been misplaced. The forms
were completed and returned to AU by each student, however, as corroborated by the
CampusVue entries referred to below and submitted as Exhibit 6-1.

        The draft finding states that, because the forms are absent, AU violated the applicable
regulations and University policy. We respectfully disagree. The regulations do not require that
an institution keep copies of LOA request forms. The regulations provide that a LOA policy
must require the student to submit a written, signed, and dated request for a LOA prior to
granting a LOA, unless unforeseen circumstances prevent the student from providing a prior
written request. It is undisputed that AU’s policy so requires. It also is undisputed that, in 38 of
the 40 files reviewed, a copy of the signed LOA form was retained in the file.

        The regulations do not require that AU keep a copy of the signed and dated request form.
Here, although it is AU practice to do so, the forms for two students were misplaced. It is clear
from the records on file, however, that the students submitted the forms and properly requested
the leave of absence.

       In the matter of student 85700, the University received and approved this student’s LOA
on November 27, 2006. As corroborated in the print-outs from AU’s CampusVue system,
submitted with this response as Exhibit 6-1, the student began her LOA on November 13, 2006.
The student resumed her studies in PSY320 on January 1, 2007, which she completed with an
“A” on February 5, 2007. She requested the LOA for immediate medical reasons while still in
Active status. As reflected in the Activities entry for November 16, 2007:

           “Returned student’s call. Student is in hospital at this time and can’t attend class.”

           As reflected in the Activities entry eleven days later, on November 27:
109
      The OIG incorrectly recalculated the student’s LDA as August 20th. The correct LDA was August 27th.
110
      Students 85700 and 68605.
Final Report
ED-OIG/A05I0014                                                                   Page 110 of 155

       “Received LOA form. Student’s LDA is 11/20/06 with expected re-entry of 1/2/07.
       Medical reasons. Approved and passed to [ ] for sig.”

        Further entries from the CampusVue system are contained in Exhibit 6-1. They
corroborate the fact that the student properly requested, and the University properly approved, an
LOA for medical reasons. AU cannot be faulted for failing to approve the LOA because the
student’s unexpected hospitalization prevented her from requesting it further in advance. And,
as the record shows, she returned the signed form to AU and later resumed classes approximately
when expected. We respectfully submit this is an example of precisely how an LOA can be used
to the benefit of the student and the Title IV programs.

        The situation with the student 68605 is similar to that of the student above, in that her
LOA began as of the last day of her PSY202 course, which she completed on July 31, 2006 with
an “A-“ grade. The CampusVue records submitted as Exhibit 6-1 demonstrated that on July 26,
2006, while in Active status, the student requested and received approval for an LOA for the
period of August 1, 2006 through September 15, 2006. The CampusVue records further
demonstrate that Ashford representatives were in communication with the student on a number
of occasions concerning her request for an LOA, that they sent her the LOA request form, and
that she returned it to them. Accordingly, the records demonstrate that Ashford complied with
regulatory requirements and its own policies regarding the student’s LOA. Finally, we note that,
before the expiration of the LOA period, the student withdrew from the program. So, the leave
of absence was converted to a withdrawal, and the return of Title IV calculation was performed,
with the appropriate last date of attendance.

        We respectfully submit that, in both instances, the records support the conclusion that the
University followed applicable regulations and its own policies, and that there was no loss to the
Title IV programs.

       F. OIG Recommendations 6.1 through 6.3 Must Be Withdrawn

        Draft recommendation 6.1 requests DOE to require repayment of $2,995 for the two
students in the 40-student sample who did not return from their LOA and for whom the finding
alleges AU did not perform correct R2T4 calculations. As discussed above, the finding is
incorrect and based on the auditor’s improper redefinition of the students’ last dates of
attendance. AU appropriately handled the R2T4 process for both students and no additional
funds are owed. Draft recommendation 6.1 must be withdrawn.

        Draft recommendation 6.2 requests DOE to require AU to identify other purportedly
improper payments resulting from LOAs during a 4-year period (2005-2006 through 2008-2009
award years). The draft finding does not provide a basis for this file review requirement. The
draft finding only identified two students out of its 40-student sample with purportedly incorrect
R2T4 payments arising out of LOAs and both allegations are incorrect. Even if correct, the
resulting 5-percent error rate is isolated and well below the 10-percent error rate threshold long
used by the DOE to determine whether a full file review is justified. Moreover, the finding is
premised on a review of files from one award year (2006-2007) and does not provide any basis
for expanding the review to cover a 4-year period. Lastly, the finding itself concedes that none
Final Report
ED-OIG/A05I0014                                                                  Page 111 of 155

of the LOAs in its 40-student violated federal limits on LOA duration. For all of these reasons,
recommendation 6.2 must be withdrawn.

       Draft recommendation 6.3 requests DOE to require AU to develop written policies and
procedures that (a) require attendance to be based on the last date of academic activity as
supported by the students’ coursework; and (b) provide reasonable assurance that LOA forms are
maintained in students’ files. Recommendation 6.3(a) is identical to recommendation 2.3(a) and
must be withdrawn for the reasons already discussed in response to draft finding 2.
Recommendation 6.3(b) must be withdrawn because 1) the finding identified only two isolated
instances of missing LOA paperwork, 2) the law does not require AU to maintain this
paperwork, and 3) AU had other evidence demonstrating approval of the LOA. Draft
recommendation 6.3 should be withdrawn.
Final Report
ED-OIG/A05I0014                                     Page 112 of 155




    APPENDIX C: Consultant’s Analysis of Enrollment Advisors’
                 Compensation, July 29, 2010
Final Report
ED-OIG/A05I0014   Page 113 of 155
Final Report
ED-OIG/A05I0014   Page 114 of 155
Final Report
ED-OIG/A05I0014   Page 115 of 155
Final Report
ED-OIG/A05I0014   Page 116 of 155
Final Report
ED-OIG/A05I0014   Page 117 of 155
Final Report
ED-OIG/A05I0014   Page 118 of 155
Final Report
ED-OIG/A05I0014   Page 119 of 155
Final Report
ED-OIG/A05I0014   Page 120 of 155
Final Report
ED-OIG/A05I0014   Page 121 of 155
Final Report
ED-OIG/A05I0014   Page 122 of 155
Final Report
ED-OIG/A05I0014   Page 123 of 155
Final Report
ED-OIG/A05I0014   Page 124 of 155
Final Report
ED-OIG/A05I0014   Page 125 of 155
Final Report
ED-OIG/A05I0014   Page 126 of 155
Final Report
ED-OIG/A05I0014   Page 127 of 155
Final Report
ED-OIG/A05I0014   Page 128 of 155
Final Report
ED-OIG/A05I0014   Page 129 of 155
Final Report
ED-OIG/A05I0014   Page 130 of 155
Final Report
ED-OIG/A05I0014   Page 131 of 155
Final Report
ED-OIG/A05I0014   Page 132 of 155
Final Report
ED-OIG/A05I0014   Page 133 of 155
Final Report
ED-OIG/A05I0014   Page 134 of 155
Final Report
ED-OIG/A05I0014   Page 135 of 155
Final Report
ED-OIG/A05I0014   Page 136 of 155
Final Report
ED-OIG/A05I0014   Page 137 of 155
Final Report
ED-OIG/A05I0014   Page 138 of 155
Final Report
ED-OIG/A05I0014   Page 139 of 155
Final Report
ED-OIG/A05I0014   Page 140 of 155
Final Report
ED-OIG/A05I0014   Page 141 of 155
Final Report
ED-OIG/A05I0014                                                                  Page 142 of 155




  APPENDIX D: University Supplemental Comments on the Draft
              Audit Report, November 19, 2010


Note: The University refers to the comments dated November 19, 2010, as its second
supplemental response to the draft audit report because it provided additional documentation to
us on August 31, 2010. In response to our request, the University provided these documents
because they were referenced in its original set of comments but were not provided to us with its
July 30, 2010, comments. Therefore, we consider the comments provided on November 19,
2010, to be the University’s only supplemental comments on the draft audit report.
Final Report
ED-OIG/A05I0014                                                                  Page 143 of 155


ASHFORD
 UNIVERSITY
       FOUNDED 1918

November 19, 2010

Gary D. Whitman
Regional Inspector General for Audit
U.S. Department of Education
Office of Inspector General
Chicago/Kansas City Audit Region
Citigroup Center 500 W. Madison, Suite 1414 Chicago, IL 60661

         Re: Draft Audit Report, Control Number ED-OIG/A05IO014

Dear Mr. Whitman:

Please find enclosed our Second Supplemental Response to the Draft Audit Report.

This supplemental response addresses provisions in the Program Integrity final
rulemaking published by the Secretary on October 29, 2010. The new regulations
were not available when Ashford University submitted its response to the Draft Audit
Report on July 30, 2010, or when it submitted its first supplemental response on
August 31, 2010, following the auditors' request for certain additional information.

Because the new regulations address issues on which the draft findings are based, we
believe it is appropriate that our remarks concerning them be considered by the audit
team in preparing its Final Audit Determination.

Sincerely,

/s/

Jane McAuliffe, Ph.D.
President and CEO

cc:    April White
       Howard Sorensen

                                                                  SM
      {D0321094.DOC/2 ) HIGHER   EDUCATION MADE AFFORDABLE             400 NORTH BLUFF BLVD·
                CLINTON, IA 52732· T.800.242.4153 . P.563.242.4023 . WWW.ASHFORD.EDU
Final Report
ED-OIG/A05I0014                                                                                   Page 144 of 155

                        Ashford University’s Second Supplemental Response
                                    to the Draft Audit Report

        On October 29, 2010, the Secretary published final regulations on Program Integrity
issues. 75 Fed.Reg. 66832 (2010).

        The new regulations were not available when Ashford University submitted its response
to the Draft Audit Report on July 30, 2010, and when it submitted its first supplemental response
on August 31, 2010 following the auditors’ request for certain additional information.

        The new regulations, among other things, address incentive payments to student
recruiters and the return of Title IV funds upon a student’s withdrawal. The new regulation on
incentive payments specifically addresses adjustments to fixed salary, the subject matter of Draft
Finding 1. The new regulation on the return of Title IV funds specifically addresses the
definitions of an institution that is required to take attendance and an academically-related
activity for purposes of determining a student’s withdrawal date, which is the subject matter of
Draft Finding 2.

        Because the new regulations address issues on which the draft findings are based, it is
appropriate that they be considered by OIG in preparing its Final Audit Report. Ashford
University therefore respectfully submits this Second Supplemental Response to the Draft Audit
Report.

      I. Draft Finding 1

        The draft audit report finds that the University’s bi-annual adjustments to the salaries of
enrollment advisors, because they were based in part on success in securing enrollments, fall
within the statutory prohibition on incentive payments. On that basis, the draft report would
require the University to submit additional documentation to prove that its salary adjustments
comply with the safe harbor regulation applicable to salary adjustments, despite the fact that
there is no finding that the University violated the regulation and despite the fact that the auditors
work papers concluded that the salary adjustments were not based solely on success in securing
enrollments.111

       The current regulation permits multiple salary adjustments, provided they are made no
more often than twice per year and are not based solely on the number of students recruited. The
new regulation, on the other hand, contains a presumption that more than one salary adjustment
during a year results in improper incentive payments:


111
   The audit work papers, and the conclusions reached by Dr. Panis as a result of his extensive analysis of the salary
data, thus demonstrate that the University was not engaged in the type of activity referred to in the preamble to the
final rule, where the Secretary noted that “in some of these instances, the substantial weight of the evidence
suggested that the other factors purportedly were not considered, and that, in reality, the institution based salaries
exclusively upon the number of students enrolled.” 75 Fed.Reg. 66877 (October 29, 2010). Here, based on the
analysis reflected in the audit work papers, Dr. Panis’s analysis, and all the voluminous documentation made
available to the auditors, it is clear that the plan as designed, and as actually implemented, complied with the safe
harbor.
Final Report
ED-OIG/A05I0014                                                                                    Page 145 of 155

                  “[A]n employee who receives multiple adjustments to compensation within a
         calendar year and is engaged in any student or enrollment or admissions activities or in
         making decisions regarding the award of title IV, HEA program funds is considered to
         have received such adjustments based upon success in securing enrollments or the award
         of financial aid if those adjustments create compensation that is based in any part,
         directly or indirectly, upon success in securing enrollments or the award of financial aid.”

75 Fed.Reg. 66950 (October 29, 2010) to be codified at 34 C.F.R. 668.14(b)(22)(i)(B).

        By presuming that the University’s twice annual salary adjustments were improper, and
therefore requiring the University to provide further documentation to prove the opposite, the
draft audit report would retroactively apply the new regulation to conduct that occurred before its
effective date. It is well settled law, however, that an agency cannot regulate retroactively. See,
e.g., Bowen v. Georgetown University Hospital, 488 U.S. 204 (1988).

        Because Draft Finding 1 effectively would amount to retroactive application of a
regulation not scheduled to become effective until July 1, 2011, it should be withdrawn from the
Final Audit Report.

        In addition, other provisions of the new regulation directly support the University’s
position that the incentive payment statute does not preclude adjustments to salary, and that the
burden therefore is not on the University to prove that its adjustments to fixed salary were made
in accordance with the existing safe harbor.

         The University’s response argued, based on a simple analysis of the plain language of the
statute, that it does not apply to salary adjustments, and therefore the University has no burden to
produce further documentation to establish compliance with the safe harbor currently in effect.
The final regulation specifically supports that conclusion:

                 “Commission, bonus, or other incentive payment means a sum of money or
         something of value, other than a fixed salary or wages, paid to or given to a person or
         entity for services rendered.”

75 Fed.Reg. 66950 (October 29, 2010), to be codified at 34 C.F.R. 668.14(b)(22)(iii)(A),
(emphasis added).

        It is undisputed that the Ashford compensation plan at issue provided for adjustments to
fixed salary. It therefore is simply not covered by the statute, and there is no burden on the
University to demonstrate that the adjustments complied with the safe harbor.112

      Finally, as to corrective action, the regulation that takes effect on July 1, 2011 explicitly
deems “multiple adjustments to compensation in a calendar year…to be based upon success in

112
   Even if the University had that burden, it has met it. As demonstrated in the initial response to the Draft Audit
Report, the salary adjustments were not based solely on the number of students recruited or enrolled, a conclusion
also reflected in OIG audit work papers reporting on two studies of salary adjustment documentation performed
during the course of the field work.
Final Report
ED-OIG/A05I0014                                                                     Page 146 of 155

securing enrollments….” 75 Fed.Reg. 66950, to be codified at 34 C.F.R. 668.14(b)(22)(i)(B).
The University acknowledges that the compensation plan in effect during the audit period
included two adjustments in a calendar year, and already has begun the process of modifying its
compensation practices to be in compliance with the new rule when it takes effect.

       For the above reasons, as well as those set forth in its prior submissions, Ashford
University respectfully submits that Draft Finding 1 should be withdrawn.

II.      Draft Finding 2

        The final regulations published October 29, 2010 include two provisions that impose new
requirements similar to those suggested by Draft Finding 2. However, those requirements were
not in effect during the relevant time period and, consistent with well-settled principles of law,
may not be imposed retroactively and without prior notice. First, the new regulations will
require institutions that voluntarily require attendance-taking by instructors to use those
attendance records to determine withdrawal dates for return-of-Title-IV (“R2T4”) purposes.
Second, the new regulations will impose on online institutions a new definition of “attendance at
an academically-related activity” for R2T4 purposes.

      A. Draft Finding 2 contends that the University was required to use its attendance
         records to determine withdrawal dates, but the regulation imposing this
         requirement does not take effect until July 1, 2011.

        Draft Finding 2 concedes that the University is not required to take attendance. Under
the law described in section V.B.1 of the initial response, the University would be entitled to use
a more lenient withdrawal date definition and to assume that all students who withdrew without
notice completed at least half of their payment periods. The University took a more conservative
approach, however, that resulted in its returning more Title IV funds than the regulation requires.

        As discussed in Section V.B.5 of the initial response, the OIG and the Department lack
the authority to recalculate refunds using University attendance records and to sanction the
University based on these erroneous recalculations. The University was not required to use its
attendance records to calculate withdrawal dates or student refunds. Current law – as described
above – only obligates the University to use the mid-point of the payment period or a later date
of documented attendance.

         The regulations which are to take effect on July 1, 2011 would, for the first time, require
institutions that are not required to take attendance to use their attendance records to calculate
withdrawal dates if they voluntarily take attendance. The current regulation does not contain this
requirement: an institution is required to take attendance “if an outside entity (such as the
institution’s accrediting agency or state agency) has a requirement, as determined by the entity,
that the institution takes attendance.” 34 C.F.R. § 668.22(b)(3)(i). The new regulation states that
an institution may also be required to take attendance if “[t]he institution itself has a requirement
that its instructors take attendance.” 75 Fed.Reg. 66952 (October 29, 2010), to be codified at 34
C.F.R. 668.22(b)(3)(i)(B).
Final Report
ED-OIG/A05I0014                                                                    Page 147 of 155

         The effect of Draft Finding 2 is to apply these new regulations to University conduct that
preceded their effective date by more than two years. Draft Finding 2 measures the University’s
purported liability based on the requirements of an institution that is required to take attendance.
The University would not owe liabilities for the cited students if the applicable requirements for
an institution that is not required to take attendance were applied. See Initial Response at section
V.B.1. The OIG and Department lack the authority to impose recalculations based on attendance
records that the law does not currently require the University to use. Indeed, as noted in our
initial response, the Department conceded during the negotiated rulemaking process that
produced the new regulation that “[p]ursuant to the statute, we cannot require the school to use
its attendance records if it is not ‘required to take attendance.’” Accordingly, Draft Finding 2
must be withdrawn.

   B. Finding 2 contends that the University was required to count only certain on-line
      participation as attendance, but the regulation imposing this requirement does not
      take effect until July 1, 2011.

        As discussed in Section V.B.3 of the initial response, although the University could have
used the more lenient midpoint definition, it calculates withdrawal dates based on the student’s
last date of attendance at an academically-related activity. Specifically, the University
determined student dates of attendance by monitoring student attendance via on-line clicks
within the University’s learning site. Consistent with the regulations, the University counted
only academic clicks to make this determination. The current regulation defines “academically-
related activity” to include, but not be limited to the following:

       “an exam, a tutorial, computer-assisted instruction, academic counseling, academic
       advisement, turning in a class assignment or attending a study group that is assigned by
       the institution.”

34 C.F.R. § 668.22(c)(3)(ii)(emphasis added). Accordingly, as explained below, the University
only considered academically-related clicks for attendance purposes if they resulted in
attendance within an online Learning Block in the student’s program.

        Draft Finding 2 contends that the University did not measure attendance by examining
the Blackboard system to determine that a student submitted an assignment, but instead reviewed
a log generated from the system for how many times each student clicked into his or her course
each day on Blackboard and monitored how many clicks were made during the session. The
draft finding concludes that the click generated on the log might or might not have been related
to academic activity.

        As discussed in the University’s initial response, the draft finding’s apparent contention
that the academic activity must entail submission of an assignment is inconsistent with the
current regulation. The definition of “attendance at an academically-related activity” in section
668.22 does not limit academic activities to those involving completion of an exam or
submission of an assignment. Rather, the regulation includes passive activities including, but not
limited to, attendance at computer-assisted instruction, a tutorial, a study group, or counseling or
advisement sessions. The regulation does not require completion of an activity or an assignment,
Final Report
ED-OIG/A05I0014                                                                                    Page 148 of 155

but only attendance at an activity, which is consistent with accepted understanding of academic
attendance requiring only a student’s attendance in the classroom.113

        The position asserted in Draft Finding 2 is not consistent with the current regulatory
definition, but with the future definition that will take effect on July 1, 2011. The new definition
provides as follows:

         (i)      “Academic attendance” and “attendance at an academically-related activity”—
         (A) Include, but are not limited to—
              (1) Physically attending a class where there is an opportunity for direct interaction
                  between the instructor and students;
              (2) Submitting an academic assignment;
              (3) Taking an exam, an interactive tutorial, or computer-assisted instruction;
              (4) Attending a study group that is assigned by the institution;
              (5) Participating in an online discussion about academic matters; and
              (6) Initiating contact with a faculty member to ask a question about the academic
                  subject studied in the course; and
         (B) Do not include activities where a student may be present, but not academically
              engaged, such as—
              (1) Living in institutional housing;
              (2) Participating in the institution’s meal plan;
              (3) Logging into an online class without active participation; or
              (4) Participating in academic counseling or advisement.
         (ii)     A determination of “academic attendance” or “attendance at an academically-
                  related activity” must be made by the institution; a student’s certification of
                  attendance that is not supported by institutional documentation is not acceptable.”

75 Fed.Reg. 66952, to be codified at 34 C.F.R. § 668.22(l)(7)(emphasis added). As shown in the
emphasized language, the new regulation, for the first time, creates separate standards for on
ground and online students. The new regulation requires “the opportunity for direct interaction”
for on ground students, and “active participation” for online students. Neither “direct
interaction” nor “active participation” is defined.

        Under the current regulation, a student is in “attendance at an academically-related
activity” if he or she attends an online class by logging into the class regardless of whether he or
she engages in two-way communications with the instructor or other students at the time, or
submits an assignment. An online student at the University has the opportunity to engage in
such activities just like a student sitting in an on ground classroom who chooses not to actively
engage in classroom discussions. Additionally, the online student who has clicked into a virtual
classroom to navigate about the classroom to view assignments, reading materials, and online




113
   See 75 Fed. Reg. 66898 (October 29, 2010)(“Certainly, traditional academic attendance is acceptable, i.e., a
student’s physical attendance in a class where there is an opportunity for direct interaction between the instructor
and students.”)
Final Report
ED-OIG/A05I0014                                                                                    Page 149 of 155

discussions of course materials and topics is actively engaged in “computer-assisted instruction,”
which is what the current regulation requires.114

        The new regulation reinforces the University’s position that its treatment of student
attendance complied with the current regulations. First, the new regulation acknowledges that
attending a class in which there is an opportunity for direct interaction between the instructor and
students can count as attendance, even if no two-way interaction occurs. This principle is
consistent with the University’s current online attendance practices: The University does not
count attendance clicks until the student has clicked into his or her online classroom and has an
opportunity to actively participate in the class. This is consistent with the current regulation that
counts as attendance, among other things, attendance at computer-assisted instruction, tutorials,
and study groups. As noted above, this is further consistent with accepted understanding of
academic attendance requiring a student’s attendance in the classroom, but not his or her active
participation.

        Second, to the extent Draft Finding 2 is based on an interpretation of “active
participation” that excludes the above activities, the simple fact is that “active participation” is a
new requirement, to take effect on July 1, 2011, and not a requirement of the current regulation,
which requires only attendance at “computer-assisted instruction.” The future regulation
excludes “[l]ogging into an online class without active participation.”115 The current regulation
does not contain this exclusion. The effect of Draft Finding 2 is to retroactively apply a future
regulation to attendance determinations during the audit period that long preceded July 1, 2011.

         Third, the current regulation provides no notice to institutions of a purported requirement
that online students must meet a different, heightened standard of attendance. The text of the
current definition contains no reference to an additional “active participation” requirement for
online students, or to a requirement to treat attendance in online courses differently from on
ground students. In fact, the regulation suggests the opposite by noting that attendance at an
academically-related activity includes, among other things, attendance at “computer-assisted
instruction.” The regulation does not say attendance at “computer-assisted instruction provided
that the student actively engages in two-way communications with the instructor or other
students while logged in during the same session.” The current regulation does not instruct
institutions to treat on-ground and on-line students differently and, in fact, conveys the opposite
message that institutions should treat all students consistently under the definition.

        Similarly, the Department has not published guidance notifying institutions of a
purported active participation requirement for online student attendance. In fact, the Department
implicitly concedes as much when it states that the requirement “is consistent with the current
guidance the Department has provided to individual institutions regarding the applicability of the
regulations to online programs.” See 75 Fed. Reg. at 66899 (emphasis added). The implication

114
    We would further note that the materials submitted with the initial response show, for the vast majority of
students, multiple “clicks” in different parts of the learning module during each single session.
115
    Although the future regulation does not apply to the audit period, the University notes that it does not concede
that students who log into their online classes are not attending and actively participating in their coursework.
Moreover, as noted above, the record demonstrates multiple clicks throughout different portions of the Learning
Block for the vast majority of cited students.
Final Report
ED-OIG/A05I0014                                                                      Page 150 of 155

is that the Department notified a few institutions of its views, but did not publicly notify all
institutions. The Department’s preamble refers to guidance it has provided in the FSA
Handbook, but the Handbook contradicts any such “active participation” requirement by
providing the following:

       The school (not the student) must document –
        that the activity is academically related, and
        the student’s attendance at the activity.

2009-2010 FSA Handbook at 5-77 (emphasis added). Note that the guidance instructs students
to document “attendance” at the activity, not “active participation” in the activity. This point is
significant because the Department’s new regulations indicate that an on ground student may
establish attendance simply by attending a class in which there is an opportunity for direct
interaction with the instructor. An institution could reasonably conclude from the regulation and
this guidance that active participation in an online class was not a precondition for attendance.
The Handbook goes on to list additional activities that count as academic activities:

       Examples of academically related activities are –
       1. examinations or quizzes
       2. tutorials
       3. computer-assisted instruction
       4. academic advising or counseling
       5. academic conferences
       6. completing an academic assignment, paper, or project, and
       7. attending a study group by the institution where attendance is taken.

Id. at 5-77 (emphasis added). Again, the emphasized language shows that attendance at
computer-assisted instruction counts as attendance without any reference to “active
participation.” Similarly, the last item regarding study groups requires that attendance be taken,
but does not require that “active participation” be documented. Lastly, the Handbook identifies
activities that do not constitute academically-related activities:

       Examples of activities that are not academically related include living in institutional
       housing and participating in the school’s meal plan.

Id. at 5-77. The Department did not instruct institutions that they must exclude instances of
logging into an online class from attendance in the absence of “active participation.” Neither the
regulation, nor the FSA Handbook, nor any guidance referenced in Draft Finding 2 notifies
institutions of any requirement to document active participation by its students in online courses
as a precondition of attendance. The regulations and guidance stated the opposite: documented
attendance at computer-assisted instruction or in which an online student otherwise had an
opportunity to participate substantiates the student’s attendance.

        Lastly, with the October 29, 2010 publication of the new “active participation”
requirement, the University is now on notice of the requirement, although, as noted above, there
is no definition of “active participation.” The University will modify its policies on or before the
Final Report
ED-OIG/A05I0014                                                                   Page 151 of 155

July 1, 2011 effective date in order to comply with the new regulation when it takes effect. The
law does not require the University to implement these modifications before this date, nor to be
measured against the new requirements during the audit period or any other time prior to the July
1, 2011 effective date.

       For the above reasons, as well as those set forth in its prior submissions, Ashford
University respectfully submits that Draft Finding 2 should be withdrawn.
Final Report
ED-OIG/A05I0014                                  Page 152 of 155




 APPENDIX E: University’s Second Supplemental Comments on the
            Draft Audit Report, January 10, 2011
Final Report
ED-OIG/A05I0014   Page 153 of 155
Final Report
ED-OIG/A05I0014   Page 154 of 155
Final Report
ED-OIG/A05I0014   Page 155 of 155